Preamble

The House met at half-past Two o'clock

PRAYERS

[Mr. SPEAKER in the Chair]

ROYAL ASSENT

Mr. Speaker: I have to notify the House, in accordance with the Royal Assent Act 1967, that the Queen has signified Her Royal Assent to the following Act:

Pensioners Payments Act 1978

PRIVATE BUSINESS

BRITIS1I RAILWAYS (SELBY) BILL (By Order)

Order for Third Reading read.

To be read the Third time upon Monday next at Seven o'clock.

Oral Answers to Questions — NATIONAL FINANCE

Income Tax (Pensioners)

Mr. Sainsbury: asked the Chancellor of the Exchequer what is the marginal rate of income tax for a pensioner couple with an income equivalent to average male earnings and composed of the flat-rate State pension and income from their savings for retirement.

The Financial Secretary to the Treasury (Mr. Robert Sheldon): The marginal rate on a total income of £4,900, which consists of £1,520 basic State pension for 1978–79 and investment income of £3,380, would be 48 per cent.

Mr. Sainsbury: Does the Minister realise that 48 per cent. is an absurdly high rate of tax to apply at that level of income, the level of average male earnings? Does he recognise that applying it to investment income in the form of a surcharge unfairly penalises those retired people, especially small business men and those who have been self-employed, who derive Hart of their retirement income from their savings instead of from occupational pension schemes?

Mr. Sheldon: Yes, but such a person by definition would have no occupational pension scheme as premised in the illustration given by the hon. Gentleman, nor would he have any retirement annuity contracts. Accordingly, he would be very ill-advised to proceed in that particular way. I note the interest of many Opposition Members to cancel the investment income surcharge, but I still maintain that there is a great difference between income which is earned and income which is unearned.

Mr. Madden: Many pensioners are rightly concerned about marginal rates of income tax, but does my right hon. Friend agree that the vast majority are more concerned about a very sharp increase in the television licence fee? Does he not agree that the time has now come to scrap the television licence and to shift the cost on to the Exchequer?

Mr. Sheldon: I know that there are a number of charges about which pensioners feel particularly badly. But one advantage they have had under this Government has been regular and continuous increases in their retirement pensions. I think that is the right way to give them the rightful treatment which they deserve.

Mr. Cope: Is it the Chancellor's ambition, as a result of the sort of rates of tax which the Minister is describing, to be the first Chancellor of the Exchequer to treble the yield of income tax during his period of office, because he has very nearly achieved that?

Mr. Sheldon: The hon. Gentleman fails to note what has happened in the last two Budgets, when we have seen income tax rates decline and an improvement in the income tax system generally. Opposition Members should note that this continuous improvement which we have been able to sustain has by no means come to an end.

Mortgage Interest

Mr. Ashton: asked the Chancellor of the Exchequer what recent discussions he has had with the building societies about the level of mortgage interest rates.

The Chancellor of the Exchequer (Mr. Denis Healey): The Building Societies Association made clear on 10th November that its decision to increase the recommended rate of interest on mortgages was taken in the light of the rise in the general level of market interest rates, which was emphasised by the decision to set MLR at 12½ per cent. from midday on Thursday, 9th November. The Government were notified before the announcement, but no discussions then took place.

Mr. Ashton: Is my right hon. Friend aware that 30 years ago the Attlee Government took powers to take rents out of the market economy and to control landlords? Why do not this Government do the same for owner-occupiers with mortgages and control the building societies?

Mr. Healey: I understand my hon. Friend's concern about the increase in mortgage rates, but if the building societies had not raised their rates they would not have been able to attract the necessary funds to sustain mortgage lending. We all would wish them to be able to do this.

Mr. MeCrindle: I note the anxiety that exists within the Labour Party for the mortgagors, but what is preventing the Chancellor from overcoming the problem by altering the rate of tax payable by the building societies? Is it not correct that after each Budget the composite rate of tax for the coming year is decided? Why cannot this be done when the mortgage rate goes up by 2 per cent?

Mr. Healey: That would amount to another subsidy on housing. My understanding is that the Conservative Party is in favour of phasing out all housing subsidies.

Mr. Stoddart: Will my right hon. Friend prevail upon the building societies to reduce the mortgage lending rate with the same speed and alacrity following a reduction in MLR as that with which they put it up following an increase in MLR?

Mr. Healey: I shall certainly use my influence to that end.

Mr. Tapsell: Is it not a fact that the rise in interest rates and mortgage rates is the inevitable consequence of the excessive public sector borrowing requirement in the last Budget of which we warned the Chancellor both at the time and prior to that Budget?

Mr. Healey: No.

Inflation

Mr. Skinner: asked the Chancellor of the Exchequer what further measures he has in mind for controlling inflation; and if he will make a statement.

Mr. Healey: I refer my hon. Friend to the statement that I made to the House on 15th November.

Mr. Skinner: Does the Chancellor agree that the increase in MLR is doing nothing to help the Government control inflation—in fact, it will have the opposite effect? Does he not accept that the three-year-old Government policy, as I read it, was to have a strong pound, a strong balance of payments and therefore be able, with strong currency reserves, to withstand short-term fluctuations of market rates from outside? Therefore, why was it necessary, with the balance of payments almost in surplus and with strong currency reserves, to push up MLR instead of fighting off these short-term fluctuations,


as was the Government's strategy back in 1976?

Mr. Healey: Private market rates had already risen by 14 per cent. on average since the MLR was fixed at 10 per cent. in June. The increase in market rates was due in part to the increase in American interest rates and in part to uncertainties about inflation in the coming year because of uncertainties on the pay front. I believe that the increase in MLR, which the Government decided a fortnight ago, will help to control the money supply and to keep the monetary aggregates under adequate control in order to ensure that inflation does not rise in the coming year.

Mr. Emery: Will the Chancellor of the Exchequer tell the House, particularly in view of the NUM pay claim which was announced yesterday, what positive action he has taken with the chairmen of the nationalised industries to ensure that they understand what sanctions will be applied against their industries if they settle above the Government's required norm, and how those sanctions will be applied?

Mr. Healey: The hon. Member should know that in the nationalised industries, as throughout the public sector, the Government, as the paymasters and the employers, will ensure that the White Paper guidelines are observed. We succeeded in doing so last year, and questions of that nature do not come well from the Conservative Party in the light of its own history with the mining union.

Mr. Alexander W. Lyon: Will the increase of 30 per cent. in the television licence fee have a marked effect on the cost of living of lower income families and pensioners, and thereby make the effect of inflation on them very much worse?

Mr. Healey: I am not aware of any increase in the cost of the television licence.

Mr. Pardoe: Will the Chancellor accept that any sanctions he might wish to bring against Ford's would be likely to cut off his own nose to spite his face? Is he aware that the only sensible sanction would be a tax surcharge on the Ford employees who have run away with the loot? Does he accept that the

President of the United States, in his address to the nation, has now advocated exactly this? In his press conference on the failure of the TUC-Government talks, the Chancellor of the Exchequer said that this was no longer impossible, and that he would like to have a look at it.

Mr. Healey: There are so many things that I want to look at, and this is one of the many. I referred in my speech on that occasion to a very interesting booklet published by the Brookings institute on the use of tax in support of pay policy in which the administrative problems, which I have often described, are very well brought out.

Sir Geoffrey Howe: The Chancellor has referred to rather simpler possible measures which he might have in mind. Does he recollect saying in the statement that he quoted on 15th November that he would contemplate either increasing taxes or cutting public expenditure? Will he tell us which of those he has in mind and where he would intend to cut public expenditure?

Mr. Healey: The obvious answer to that is "No". I made it clear that an increase in taxation or a cut in public expenditure would be an inevitable consequence of a wage explosion, and I see that the general secretary of the TUC accepted this in a speech he made in Leek on Friday of last week. But there is no sign as yet of a wage explosion.

European Monetary System

Mr. Tim Renton: asked the Chancellor of the Exchequer whether joining the European monetary system will be helpful to the stability of sterling.

Mr. Healey: If the system were lasting and effective, membership of it would be helpful to the stability of sterling.

Mr. Renton: That qualifies as a typical non-answer from the Chancellor. Why is he so adamant against Britain accepting a wider band arrangement at the start like Italy, particularly since such a band appears to be closely aligned with the Treasury's current management of the sterling exchange rate? Is it not a fact that the Chancellor, having had one eye blacked by the unions over pay policy,


does not dare to get the other one blacked over EMS by the Tribune Group?

Mr. Healey: My eyes are quite clear, though they may be a little pink because of the long discussions I have had on the EMS with my colleagues abroad. On the question of the wider band I do not believe that a wider band would be helpful to sterling, any more than the Irish or French Government believe that it would be helpful to the French franc or the Irish pound. I can understand the reasons why the Italian Government believe that it might be helpful to the lira, and if they wish to make use of this option I would strongly support their right to do so.

Mr. Hoyle: Does my right hon. Friend agree that it would be a disaster to join the EMS, particularly in the light of the findings of a very important House of Commons Committee which forecasts that unemployment will rise by more than 1 million and that there will be a lack of growth by 8·4 per cent. by 1981?

Mr. Healey: I regret to correct my hon. Friend, whose support I always welcome on these occasions, but I read the report of the Select Committee very carefully. It avoided coming to any conclusion. I notice that the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) having expressed strong opposition to EMS outside, has decided for political reasons that he is now strongly in favour. Of course the Conservative Front Bench is divided, as always, into three parts like Gaul.

Mr. Powell: Is not any system for the international maintenance of currency parities almost bound to cause inflation somewhere—namely, amongst those countries which would be called upon to lend large quantities of their own currency in order to maintain the parities?

Mr. Healey: Wth great respect, we had a system of fixed, but adjustable, parities for a quarter of a century under Bretton Woods, and during that period the general rate of inflation was very much lower than it has been at any time since that system collapsed.

Mr. Hooley: Does my right hon. Friend agree that, if there is no convergence between the real economies of the countries concerned, the EMS will not

work, and if there is such a convergence, the EMS is not necessary?

Mr. Healey: I think that this syllogism, if that is the right word for it, attractive at it is, does not comprehend the whole of the truth. The fact is, for example, that the European currency snake—and I have made it clear that the Government would never join an organisation of that nature after the experience of the Conservative Government, who joined it and came out again within seven weeks—has survived despite substantial differences in performances on inflation and balance of payments between its member countries, and my hon. Friend and the House would be wise not to be too dogmatic on this question.

Sir Geoffrey Howe: Does the right hon. Gentleman agree that it would be unwise for the discussion on this matter to proceed on the basis that the figures quoted by the hon. Member for Nelson and Colne (Mr. Hoyle) represented a reality of forecast or assumption? Does not the Chancellor agree that that suggests that the Government have been unwise not to play a greater part in leading and informing public debate in this country? Will he indicate whether the Government's decision or line of decision on the matter is likely to be revealed to us in the Green Paper which I understand is to be published tomorow? Will he give an assurance that, whatever decision the Government or other Governments come to on the present proposals, he will do everything possible to maintain the opportunity of the United Kingdom to play a full part in promoting greater monetary co-operation in Europe?

Mr. Healey: I can certainly give the latter assurance. The right hon. and learned Gentleman is quite right. The type of model published by the Select Committee in an annexe on the basis of arbitrary assumptions is, as the Financial Times said today, a sort of parlour game which throws very little light, and the Green Paper makes clear what will be likely to happen if we join a particular scheme of a particular nature.
The right hon. and learned Gentleman asked for a review of this matter. I draw to his attention the views of the hon. Member for St. Ives (Mr. Nott), also an Opposition Front Bench spokesman, who made a speech on this matter yesterday,


in which the only concrete proposal was that we should replace sterling with the deutschemark. He concluded his speech by advising the Conservative Party to
avert arguments about being pro or anti-Europe as well as the debate between fixed or floating exchange rates. Instead, they should 'pronounce our enthusiasm' for greater monetary co-operation in Europe.
That type of agnostic ambiguity is not a very useful contribution.

Mr. Kilroy-Silk: asked the Chancellor of the Exchequer if he will now publish all the working papers prepared on the subject of the European monetary system.

Mr. Bendall: asked the Chancellor of the Exchequer if he will make available all papers relevant to the current discussions on the European monetary system.

Mr. Healey: I have laid before the House a memorandum which includes the basic document outlining the proposed scheme and a Green Paper will be published tomorrow.

Mr. Kilroy-Silk: Will my right hon. Friend make a gesture, even under our limited open government policy, by publishing the following Cabinet documents: GEN 136(12)78, on the likely foreign reactions to Britain's membership; GEN 136(13)78, on the economic implications: and GEN 136(14)78, on the problems of the fixed exchange rate? They all show conclusively that the consequences to Britain would be catastrophic.

Mr. Healey: The answer, shortly, is "No, Sir."

Mr. Litterick: Why not?

Mr. Healey: If I may give one good reason, I notice that in reporting what purported to be the contents of one of the papers mentioned by my hon. Friend, The Times gave a totally false impression of both its contents and its status.

Mr. Bendall: I do not see that that is an answer. I still cannot see why the papers cannot be published.

Mr. Spearing: Does not my right hon. Friend agree that the Government have practised closed Government on this issue? As he has not had the courtesy to inform the House, will the Green Paper include the substantive conclusions

reached on Monday and Tuesday at the Finance Ministers Council? Why did he not tell the House? Does the plan match the eight conditions that my right hon. Friend mentioned in his evidence to the Select Committee?

Mr. Healey: As is normal on these occasions, I have made a written statement which describes the results of the Finance Ministers Council meeting on Monday. The Green Paper to be published tomorrow will describe them in greater detail, as I know my hon. Friend would wish.
On the question of open government, I cannot recall any other Chancellor of the Exchequer giving evidence for 90 minutes to a Select Committee, answering in full every question he was asked on a matter. It comes rather ill from my hon. Friend if he believes what he said about open government.

Mr. Dykes: Does not the Chancellor agree that the papers might have dealt with the important subject of the location of the European monetary fund when it is established in several years time? Would he be in favour of its being located in London?

Mr. Healey: I would rather know what the fund is and what it will do. As that will not be decided for two years, I should like to defer a view as to where it should be located, if and when it comes into existence.

Minimum Lending Rate

Mr. Clemitson: asked the Chancellor of the Exchequer if he will make a statement on the effect of the recently announced increase in minimum lending rate.

Mr. Healey: The increase in MLR had its intended effect of stabilising market interest rates. The new level of short-term interest rates is ½ per cent. to 1 per cent. higher than the level ruling immediately before the change. The increase in long term rates was much less, on average about one-quarter. These changes reestablished conditions in the gilts market in which it was possible to resume funding the PSBR on a significant scale.
The clearing banks have since raised their base rates by 1 per cent. The Building Societies Association announced an increase in the recommended mortgage rate


by 2 per cent., although most of that increase was in response to the increase in market rates which preceded the increase in MLR, as the association stated very fairly in announcing its decision.
The possibility of a reduction—[HON. MEMBERS: "Too long."] With respect, I was asked to make a statement on the effect of the recently announced increase and I think that I owe it to my hon. Friend to do so, however inconvenient it is to hon. Members opposite to hear it.
The possibility of a reduction in interest rates depends largely on the prospect for inflation, and therefore critically on moderation in pay settlements in the coming months.

Mr. Clemitson: I am grateful to my right hon. Friend for that answer. Is it not true that the policy was intended to be anti-inflationary? Do not such supposedly anti-inflationary policies as raising the minimum lending rate have in the end the reverse effect? Do not they result in cutting living standards by, for example, the raising of the mortgage rate? Is not this an incitement to people to claim higher wages rather than an encouragement to them to moderate their claims?

Mr. Healey: It is the case that the increase in mortgage rates will add somewhat to the retail price index—something under half of 1 per cent. in the coming months. But I believe that if the Government had not shown their determination to control the monetary aggregates the increase in inflation would have been much higher and much more damaging to the prospects of the pay policy. But I strongly agree with my hon. Friend that low rates of inflation should encourage moderation in pay settlements, and I hope and know that he will support the Government in seeking a response from the trade unions to the fact that the rate of inflation has been cut by half in the past 12 months and living standards have risen by 7 per cent.

Mr. Lawson: When will the Inland Revenue be recoding home buyers to enable them to get the tax relief due to them as a result of the sharp increase in interest rates? Can the right hon. Gentleman confirm the alarming reports that this is to be delayed for several months, probably until August? If so, why?

Mr. Healey: The hon. Gentleman would contribute to the ease with which the House gets through its business if he read the Order Paper occasionally. He would then discover that the next Question is devoted entirely to that matter.

Several Hon. Members: rose

Mr. Speaker: Order. We are running very much behind time.

Mortgage Interest (Tax Relief)

Mr. Hal Miller: asked the Chancellor of the Exchequer whether he has any proposals to reduce the amount of tax relief allowed on mortgage interest payments.

The Chief Secretary to the Treasury (Mr. Joel Barnett): No, Sir.

Mr. Miller: While thanking the Chief Secretary for ignoring the proceedings of the Labour Party conference, may I ask him whether he will now address his mind, following the recent stabilisation, as the Chancellor describes it, in mortgage interest rates, to the question of the Inland Revenue failing to recode people's tax and therefore in effect reducing the interest rate relief?

Mr. Barnett: I can tell the hon. Gentleman that since January this year the allowance in the coding has been taken at 9½ per cent., whereas for the greater number of mortgage payers the actual interest they were paying was 8½ per cent. So for the rest of this income tax year, 1978–79, there will be for a large number of taxpayers an underpayment of tax; for others there will be an overpayment but of fairly modest proportions. In fact, it will depend upon when the increase takes place. For some, it will take place almost immediately; for others it may be up to six months from the date of the announcement. Thus, the hon. Gentleman will see that at the most the situation will be nothing like what he and some others have indicated.

Mr. Litterick: What is likely to be the approximate total value of the subsidy at the end of the current financial year given to owner-occupiers as a result of the increase in mortgage interest rates?

Mr. Barnett: The present estimate of tax relief in 1978–79 is £1,110 million.

Vehicle Excise Duty

Mr. Ronald Atkins: asked the Chancellor of the Exchequer what is his estimate of the extent to which petrol tax would have to be increased if the whole of the excise duty on private cars were transferred to a petrol tax; and what proportion of private motorists would benefit from the change.

Mr. Robert Sheldon: As my right hon. Friend the Secretary of State for Transport told the House on Tuesday, the Government propose to phase out the vehicle excise duty on all petrol-driven vehicles and replace it by an increase in petrol taxation by 1983. I estimate that an increase of about 19p per gallon in petrol taxation would be required to replace the revenue from VED on petrol-driven vehicles in 1978–79. This could be expected to reduce the cost of private motoring for something over 8 million out of the 14 million motorists in the country.

Mr. Atkins: Do not these figures confirm that the petrol tax is not only more equitable than the vehicle excise duty because it taxes actual road use, but benefits the majority of motorists, especially the less affluent?

Mr. Sheldon: I do not think that there is any doubt that the taxation of petrol rather than the taxation of cars results in the taxation of use. In so far as it is possible to do that at present, over a considerable phasing-in period, that is to the advantage both of motorists and those in the industry generally.

Mr. Donald Stewart: Is the right hon. Gentleman aware of the cost of living implications for rural areas? Many of these areas are bereft of alternative transport, in some cases through action by Governments in London, particularly with regard to the railways. Has he any plans to alleviate these extra costs to the rural areas?

Mr. Sheldon: The right hon. Gentleman is correct in drawing attention to the problems of those in rural areas. But they will receive some benefit both from the fact that they will be enabled to keep a car on the road more easily, because of the reduction in the vehicle excise duty, and from the provision that we

made in the Transport Act for those who share journeys to share the petrol costs.

Mr. Moate: Does the right hon. Gentleman agree that there is a danger that motorists will end up with the worst of all worlds, in that they will have to pay not only the 19p extra per gallon but a registration charge to cover the administrative expenses of maintaining the bulk of the existing work force at the Swansea licensing centre?

Mr. Sheldon: The hon. Gentleman fails to take into account the way in which the duty on petrol has declined over the past few years in real terms. If we were to bring the cost of petrol up to what it was under the last Conservative Administration, we should have to increase the duty by 30 per cent. That shows the real result of what this Government have done over the past four and a half years.

Mr. Buchan: I am in general agreement with what my right hon. Friend said, even in relation to rural areas, but does he not agree that there is a problem here? In working out the position of the average rural motorist, the Government's paper forgets that there is a wide scatter of non-average motorists within that average. That is especially true of the more remote areas, which have the added burden of dearer petrol. Will my right hon. Friend examine those aspects?

Mr. Sheldon: I am aware of the important point that my hon. Friend makes, but the vehicle excise duty has been evaded on a wide scale over the past few years. Our estimates are that evasion was between 7 per cent. and 9 per cent. I think that it was right that when the conditions were opportune a move of this kind should take place.

Cash Limits

Mr. David Price: asked the Chancellor of the Exchequer what rate of pay increases is being used currently by the Government in determining cash limits for the 1978–79 estimates.

Mr. Joel Barnett: As stated in Cmnd. 7203, the assumptions used for the 1979–80 cash limits will reflect the Government's policy on pay.

Mr. Price: From that non-answer, may I assume that the Government's 5 per


cent. pay limit is the cash limit figure? If so, can the right hon. Gentleman tell the House how the Government intend to make it stick in the National Coal Board and with the National Union of Mineworkers?

Mr. Barnett: The answer to the first part of the hon. Gentleman's question is "Yes". The answer to the second part is that we shall continue to persist with making our incomes policy work. I am sorry to see the hon. Gentleman smiling. I hope that he would expect and want us to be successful.

Mr. Loyden: Does not my right hon. Friend agree that wages are only one element of inflation and that the disregard by my right hon. Friend the Chancellor of the Exchequer of the other elements is an indication that wages are seen, certainly by the Opposition, as the total cause of inflation? Does my right hon. Friend agree that it is about time the other elements of inflation were examined and decisions were taken on them?

Mr. Barnett: My hon. Friend must know that neither my right hon. Friend the Chancellor nor I has ever said that wages are the only element in inflation. But I hope that my hon. Friend will accept that they are a very important element in inflation.

Mr. Lawson: Since the Government set such great store by the much-advertised agreement with the TUC over stage 4, and since that agreement somewhat unexpectedly failed to materialise, how much higher does the Chief Secretary expect pay and price inflation to be in the coming year as a result of that grave setback—or was it just a load of eyewash in the first place?

Mr. Barnett: The hon. Gentleman is probably in line with most of the Opposition Front Bench on three points. [HON. MEMBERS: "Answer."] I am about to do so. They are, first, that the hon. Gentleman would have it that the document was of no value; secondly, presumably, that it was a sell-out; and, thirdly, that it would not work. The fact is that the Government are continuing to discuss these matters with the TUC, and we shall continue to ensure that our pay policy works.

Occupational Pension Schemes

Mr. McCrindle: asked the Chancellor of the Exchequer if he is satisfied that the tax regulation on occupational pension schemes facilitates the transfer of such pensions on changing employment.

Mr. Robert Sheldon: Yes, Sir. Inland Revenue practice in relation to the approval of occupational pension schemes allows transfer payments to be made freely between all types of approved schemes. I have no evidence that there is any general difficulty in such transfers. If the hon. Gentleman has any particular case in mind I suggest he should write to me.

Mr. McCrindle: Does not the Minister agree that the next major leap forward in occupational pensions is likely to be a greater facility for transferring a scheme on changing jobs? I take on board what the right hon. Gentleman has said, but will he look again at the operation of the tax system to see whether a better way can be found to ease the situation? At present, the cards appeared to be stacked against the employee changing his job.

Mr. Sheldon: In general, there is no impediment to transferring pensions from one employer to another as the employee changes jobs. If the hon. Gentleman has a particular case in mind, or seeks to make a particular improvement, I shall be glad to hear any suggestion from him.

Sir Brandon Rhys Williams: Will the Government make it obligatory on occupational pension schemes that they should give full transferability of all accrued rights as a future condition of eligibility for tax concessions?

Mr. Sheldon: There is full transferability at present. Capital sums can be transferred, whether the benefit is a pension or even a lump sum payment. We have been extraordinarily helpful in ensuring that that comes about, to make sure that those who wish to move jobs have no disincentive in the form of tax treatment of their pension rights.

Mr. McCrindle: On a point of order, Mr. Speaker. In view of the unsatisfactory nature of that reply, I give notice that I shall seek to raise the matter on


the Adjournment at the earliest possible moment.

Economic Growth

Mr. Radice: asked the Chancellor of the Exchequer whether he is satisfied with the rate of economic growth.

Mr. Healey: I share the widespread satisfaction with the economic growth rate this year.

Mr. Radice: I thank my right hon. Friend for that answer, but does he agree that the main threats to continued growth are, first, the failure of parts of British industry to respond to the expansion of demand, and, secondly, the possibility of a pay explosion this winter?

Mr. Healey: Yes, Sir, I agree very much. I think that there are two problems. I dealt with the one on the supply side in some areas in a speech which I made at a TUC conference on the industrial strategy last Thursday. It is undoubtedly the case that a pay explosion would hit our hopes of maintaining the current rate of growth in the coming year.

Mr. Watt: Does not the Chancellor of the Exchequer agree that one of the biggest hindrances to economic growth is the high cost of imports? When will the Government bring out a positive policy on import substitution?

Mr. Healey: I am not quite sure what the hon. Member was suggesting. If the cost of imports were rather higher, perhaps we would import fewer of them.

Mr. Ron Thomas: Does not my right hon. Friend agree that the use of emotive language such as "pay explosion" does not help? Does not he agree, further, that Treasury orthodox policies of cutting back demand and making cuts in the standard of living of working people have been one of the major reasons for the lack of economic growth?

Mr. Healey: Whether or not one uses phrases such as "pay explosion", I think that the House would agree—I know that my hon. Friend will—that a position where increases in pay of 30 per cent. which lead to increases in the rate of inflation of 28 per cent. which are accompanied inevitably by increases in taxation thereby leading to a fall in real pay, as

the general secretary of the Union of Post Office Workers pointed out was the experience of his own members in 1975, is one to which we do not want to return. I hope that I shall have the support of all my hon. Friends—and in fact, of all hon. Members on both sides of the House—in ensuring that we do not.

Mr. Pardoe: Has the Chancellor of the Exchequer estimated roughly what growth rate he thinks will be required over, say, the next two or three years within OECD to get us back to what he would regard as full employment? Does he see that growth rate taking place?

Mr. Healey: All economists have found it impossible to understand the relationship between employment and growth rates as it has developed over recent years. It is within the memory of the House that most economists have been predicting a very large increase in unemployment in this country over the past 12 months. In fact we have had a fall of more than 107,000, thanks to the policies of Her Majesty's Government which I know have the support of all my hon. Friends, including my hon. Friend the Member for Bolsover (Mr. Skinner).

Mr. Lawson: In the interesting speech to which the right hon. Gentleman referred a moment ago, he will recall that he said that growth would fall off sharply next year, and he attributed this largely to the fact that manufacturing industry would not be as competitive as agriculture, distribution and private sector services. Why is it that the heavily unionised sector of the economy is so much less efficient than the largely non-unionised sector?

Mr. Healey: The hon. Member is talking—I am trying to find a polite word for "tripe"—[An HON. MEMBER: "Balderdash"] Yes, balderdash. As I pointed out in my speech, large sections of manufacturing industry which are heavily unionised have a very high growth rate and compare favourably in growth with other parts of the world. The problem that we have to face is how we raise the performance of the less efficient parts of industry to that of the more efficient parts. The fact that differences of performance can exist on this scale between one sector and another—even in the same sector between one firm and another—suggests


that the answer is not to be found in tax regimes, unionisation, welfare States or any of the nostrums peddled so regularly by the Conservative Party.

Pay Settlements (Government Action)

Mr. Gow: asked the Chancellor of the Exchequer whether he will make a statement about the operation of the Government's black list as it applies to withholding Government contracts from companies deemed to be in breach of the Government's pay guidelines.

Mr. Michael Latham: asked the Chancellor of the Exchequer what is the current number of firms on the Government's black list for paying their work people a legal wage increase in excess of the voluntary pay guidelines; and what is the total number of firms which have been on the black list at any stage, including those since removed from it.

Mr. Joel Barnett: There are currently 65 firms subject to discretionary action for reaching pay settlements outside Government pay guidelines. Such action may include the withholding of Government contracts. Ninety-four firms have at one time or another been subject to discretionary action, including 29 which are no longer subject to such action.

Mr. Gow: Does not the Chief Secretary understand that there is an overriding need for a full statement by the Chancellor of the Exchequer or himself about the way in which the black list will operate and that that statement also requires the approval of this House? Will he understand that the basis on which the Government are seeking to operate is unlawful—[Interruption]—in the sense that it does not have the specific approval of Parliament?

Mr. Barnett: I simply do not agree with the hon. Gentleman, and I find the cheers of Opposition Members somewhat surprising. It would be an abuse of the responsibility of Government to allow increases in the private sector of the kind now being claimed and do only what the Opposition want us to do—have strict cash limits on the public sector.

Mr. Michael Latham: If a firm on the black list, as Ford is likely to be next week, still submits the most advantageous tender to the Government but it is re-

jected to the disadvantage of the taxpayer, is it then the Government's intention to invite Toyota and Datsun to fill the gap?

Mr. Barnett: It is the Government's intention to defeat the problem of inflation. As this is the overriding national interest, I had hoped to have the support of the Opposition instead of the carping criticism that we receive constantly.

Mr. Ashley: Let us suppose that the Government stand by idly and allow wage increases of 16½ per cent. or more to those with high salaries and relatively high wages. What is the Government's estimate of the effect of that lack of action, first, on unemployment and, secondly, on the level of wages of low paid workers?

Mr. Barnett: I am obliged to my hon. Friend. The fact is that we do not intend to stand by idly. We intend to make our counter-inflation policy work. I hope that we shall have the support of everyone who has the national interest at heart.

Sir Geoffrey Howe: Will the Chief Secretary return to the supplementary question put to him by my hon. Friend the Member for Eastbourne (Mr. Gow)? Instead of using general phrases such as not intending "to stand by idly", will he say whether there is any authority in law whereby the Government can require local authorities to refrain from making their purchases at the best prices in the interests of their ratepayers? Is there any legal authority for that?

Mr. Barnett: I can tell the right hon. and learned Gentleman that there is no abuse of the law if the Government use discretionary action—[Interruption.] The Government are using discretionary action where it is specifically provided by Parliament. It would be an abuse of our responsibilities if we failed to do that.

Mr. Speaker: Order. I shall allow Prime Minister's Questions to run one minute longer, because we are a little late starting them.

PRIME MINISTER (ENGAGEMENTS)

Mr. Wm. Ross: asked the Prime Minister if he will list his engagements for 23rd November.

The Prime Minister (Mr. James allaghan): This morning I presided at a meeting of the Cabinet. In addition to my duties in this House, I shall be holding further meetings with ministerial colleagues and others, and attending a reception given by Her Majesty The Queen.

Mr. Ross: Since, evidently, the Prime Minister will have some time to spare, will he find the time to review an ITN programme broadcast on 29th January of this year which featured a number of IRA members exhibiting an M60 machine gun in Londonderry, and will he seek to establish why no prosecution of these godfathers of murder has resulted from this incident, despite the fact that two of the offenders were positively identified from the ITN film?

The Prime Minister: I am grateful to the hon. Member for giving me prior information of his concern about this matter. Although I have had the opportunity of looking at it only in a preliminary way, it is quite clear that it is an unsatisfactory position. However, the law relating to the admissibility of photographic evidence is universal throughout the United Kingdom. I understand that there are certain difficulties about the proposal which the hon. Member made, but I have asked the Ministers responsible to pursue it.

Mr. Ashton: Will my right hon. Friend find time today to look at the newspaper reports this morning that the Cabinet have decided to increase the cost of a television licence to £27? Is he aware that this represents almost a week's income for a pensioner couple? How much longer can we go on having a system where the Savoy Hotel, with 400 sets, pays for one licence exactly the same price as we are now expecting pensioners to pay? Should not we begin to take this out of taxation?

The Prime Minister: There are a number of anomalies in respect of television licences, and my hon. Friend has drawn attention to one of them. However, I could not recommend to the House the abandonment of the £300 million or so which is derived at the moment from television licences, and put it on taxation.
As regards the amount of the licence fee, I understand that it is still among the cheapest, if not the cheapest, in

Europe, and certainly the service is the best.

Mrs. Thatcher: May I question the Prime Minister about his sanctions policy in general and particularly with regard to Ford? Is he aware that we consider the sanctions policy, as at present operated, to be unfair, arbitrary and unjust in that the decision is made behind closed doors and there is no appeal against it? How can the Prime Minister possibly justify penalising a company which has already paid very dearly for trying to support his policies? Against whom would such sanctions be directed—the company or those who work for it?

The Prime Minister: The right hon. Lady and the Opposition generally have made their position clear on a number of occasions. They do not like action being taken against firms. We believe that it is the best thing to do and we shall continue to do it when we think that it is necessary. There is no requirement upon the Government to purchase products from any firm or group of firms. Therefore, we shall refrain from doing so, if we believe that it is in the best interests of overcoming inflation to do so.

Mrs. Thatcher: May I ask the Prime Minister a specific question? What was a profitable company such as Ford to do when it could afford to pay the increases? Was it expected to hold out until it became a loss-making company, just like British Leyland?

The Prime Minister: The right hon. Lady's cloven hoof shows through as soon as she refers to British Leyland. She correctly draws attention to the dilemma, as she often draws attention to many dilemmas, without suggesting a suitable answer. I am not saying that Ford does not have a great problem here. But there is an overriding national interest. The overriding national interest for the Government is to keep down inflation. We intend to take all possible steps to do so.

Mrs. Thatcher: rose

The Prime Minister: Before the right hon. Lady puts her question for the third time, let me say, as regards Ford, that I have nothing to say about Ford at the moment because it is important that


the firm should be notified before anything is said in public. That is our usual practice.

Mr. Jay: Is my right hon. Friend aware that the United States Government are following exactly the same policy of sanctions against firms which break the pay guidelines? Is it not, therefore, rather hysterical to describe this policy as arbitrary and unjust?

The Prime Minister: The right hon. Lady's view is that it is unjust and unfair and she is entitled to say that. On the other hand, standing here, I have to take the whole of the national interest into account. Frankly, in government, it is a question of the whole of balancing one unfairness against another when reaching decisions.

Mr. Aitken: asked the Prime Minister if he will list his engagements for Thursday 23rd November.

The Prime Minister: I refer the hon. Member to the reply which I have just given to the hon. Member for Londonderry (Mr. Ross).

Mr. Aitken: Does not the Prime Minister realise that not only must he make a full disclosure to Parliament of what sanctions he intends to impose on the Ford Motor Company, but he must say what precisely is the legal and constitutional basis of those sanctions? Is he further aware that the secret blacklisting procedures which put on those sanctions are absolutely unacceptable in a parliamentary democracy?

The Prime Minister: There is no secrecy about this— otherwise I do not know why everyone on the Opposition Benches should be shouting "Ford" at me. The secrecy is certainly not between the Government and the companies concerned. There is nothing hidden from them. If the companies wish to make the fact public they may do so, and if they give the Government permission to do so, the Government will make it public. This is a matter between the Government and the companies in the first place.

Mr. Terry Walker: Will my right hon. Friend find time in a very busy day to consider with his colleagues the sale of Harrier aircraft to China, because this is a pressing problem which needs to be resolved quickly?

The Prime Minister: I am not sure that the problem is as pressing as all that. Our relationship with China, as I have made clear to the Vice-Premier of China, must proceed on a balanced basis. Political, trade, cultural and defence relationships must move together. One will not get ahead of the other. I believe that the Vice-Premier understands that. There are important matters which we shall certainly take our full time to consider before reaching a conclusion.

Mr. Ridley: Is the Prime Minister aware that it is intolerable that Ford should have to conduct negotiations with the question whether sanctions will be applied to it depending. not on the law of the land or any predictable thing, but upon his fickle whim? Is it not a principle of British justice that a person knows what the consequences of his actions will be before he undertakes them? Will he now tell the House what he intends to do?

The Prime Minister: I notice that the hon. Gentleman says that this is illegal. If it is, it can be challenged in the courts. So far no one has produced any evidence to me that the right of the Government to withhold orders from any firm has any element of illegality about it. I would be glad if someone would tell me what the illegality is.

Mr. Heffer: Is my right hon. Friend aware that it is the height of hypocrisy for people to worry about sanctions on employers when in the past they have been keen to impose sanctions upon workers? Further, is it not true that the 5 per cent. policy is not the accepted policy of the Labour movement? Instead of listening to those on the other side of the Chamber on this matter, will my right hon. Friend concern himself with the views of the Labour movement and change the policy before it is too late?

The Prime Minister: I apreciate the way in which my hon. Friend puts his supplementary question. As we well know, the Opposition do not care whether the policy succeeds or whether inflation goes up. That is not their concern. While I am always ready to listen to the views of the Labour and the trade union movements on this issue, and take them seriously into account, I cannot depart from the basic fact, which I believe the country


well understands, namely, that if there is an increase in overall earnings of much more than 5 per cent. during the coming year inflation will rise again into double figures, and unemployment will go up. I cannot depart from my responsibility to state that because of the dislike of anyone, whether he be friend or foe. That is why the Government will use every opportunity that they can—every weapon and instrument at their disposal—to ensure that inflation does not rise into double figures and that unemployment does not go up. We shall fail in some cases, as we have failed with Ford, but we shall succeed on others. I know that I have the understanding of the whole country for what we are trying to do.

NORTHERN IRELAND

Mr. Pardoe: asked the Prime Minister if he will pay an official visit to Northern Ireland.

The Prime Minister: Visits to Northern Ireland are not announced in advance.

Mr. Pardoe: May I ask the Prime Minister to discard any gratuitous personal insults which he may have been asked to utter on this occasion by his right hon. Friend the Secretary of State for Northern Ireland and accept that I am not calling for the immediate withdrawal of British troops? Will he instead recall that in his own book he stated his marked reluctance to commit troops in the first place, precisely because he feared that that commitment would become permanent? Does he recognise that the very permanence of our commitment may be persuading some of the politicians in Northern Ireland that they do not need to make the compromises necessary for a political settlement?

The Prime Minister: I am glad to hear that the hon. Gentleman is not calling for the withdrawal of British troops. That is helpful in existing circumstances. Otherwise, comfort is given to those who believe that violence can achieve what reason will not achieve. As regards the veto power—I think that that would be the correct way of summing up the hon. Gentleman's words—I realise that the present posture means that we may not make any progres on constitutional reform in Northern Ireland. My right hon. Friend

the Secretary of State for Northern Ireland is doing things in the best possible way, by having a series of discussions with all of the parties. It remains our strong policy that, as soon as it is possible to achieve any measure of acquiescence and agreement, we shall be happy to introduce constitutional reforms into Northern Ireland to enable both communities to take part in an acceptable form of government.

Mr. McNamara: Does not my right hon. Friend agree that the recent decisions of the Government, such as that concerning the legislation which I understand we are to discuss next week dealing with extra seats, makes the majority in Northern Ireland even more intransigent when it comes to making any concession whatever to the declared policy of the Government and the party?
Should we not look carefully at that type of legislation and possibly, even at this late stage, withdraw it?

The Prime Minister: This legislation arises from a recommendation by Mr. Speaker's Conference, which I believe was unanimous or almost unanimous. It is always the Government's responsibility and practice to carry out such legislation. I quite realise that my hon. Friend may take the view that the legislation would make the majority more intransigent. However, that would be a short-sighted way of approaching this issue on the part of the majority. The events of the past 10 years have made the majority realise more and more that the minority community must be integrated into the affairs of the Province.

Mr. Powell: Is the right hon. Gentleman aware that when he next visits that Province he will be gratified to find an increase in public confidence throughout the community? Is he further aware that he will note the successful recruitment of all the security forces, which is making it possible for the Army to play more of a proper part in the security of the Province and for the security in practice to be taken over by the police and the UDR?

The Prime Minister: I am obliged to the right hon. Gentleman, because this is and should be the policy. I am glad to hear that it is being successful. The policy is that the RUC should take the prime



role in security in Northern Ireland with the Army in a supporting role.
My right hon. Friend the Secretary of State has given me details of the number of civilian and Service deaths and injuries in the past 12 months. I am glad to see that, despite the recent explosions, the figures are on a downward path. It looks as if what my right hon. Friend and others have said is true—that the ordinary people in Northern Ireland are sick and tired of the violence. They would like to see some constitutional development but they are prepared to accept the present situation if it means that violence, death and bloodshed can he restrained.

Several Hon. Members: rose—

Mr. Speaker: Prime Minister—statement.

RHODESIA

The Prime Minister (Mr. James Callaghan): Since the Anglo-American proposals for Rhodesia were made public in September last year, we and the United States Government have been working to bring all the parties together in round-table talks for direct negotiations. In April of this year the Patriotic Front agreed to attend such talks but the Salisbury parties, who had just signed their own agreement, were not then prepared to take part. Recently the Salisbury parties have said that they are willing to attend an all-parties meeting without preconditions, but now the leaders of the Patriotic Front appear unconvinced that the basis for a sucessful all-party conference exists.
As I told the House on 7th November, if the conditions seemed right I would be ready to make a personal effort to bring to an end the present violence and bloodshed by means of all-party discussions with all those involved. At such a conference Britain and the United States would put forward the Anglo-American proposals. A restatement of these has recently been put to all the parties. We do not set conditions for the attendance of the other participants, but a conference will in our opinion be most likely to succeed if we begin with the basic framework which we and the United States have identified following our earlier intensive discussions with all the parties.

There would need to be a willingness to compromise by all those attending if an acceptable settlement is to be reached. Is there a prospect for success?
I have had consultations with President Carter and with his agreement I have concluded, together with my right hon. Friend the Secretary of State for Foreign and Commonwealth Affairs, that we should endeavour to find out whether such a basis exists for calling an all-party conference to be held in the United Kingdom in the new year at which I would then be willing to take the chair. With the President's support, I propose to send a personal representative to Africa to talk privately with all concerned and to advise me when he returns. I am glad to say that my right hon. Friend the Member for Anglesey (Mr. Hughes) has agreed to undertake this difficult task. President Carter has agreed that Mr. Stephen Low, the United States Ambassador to Zambia, should accompany my right hon. Friend in his consultations so that he can similarly advise the President and the United States Secretary of State.
My right hon. Friend will leave for Africa early next week and all the parties will, I trust, agree to meet and talk with him both inside and outside Rhodesia. I also hope that he may be able to visit the front-line Presidents as well as Nigeria and South Africa. My right hon. Friend will wish to conduct his conversations with as much privacy as possible. He will assess and report to me whether or not the conditions exist for a conference leading to a negotiated settlement to which all parties would adhere and which would then be supported by the international community. I do not underestimate the difficulties that my right hon. Friend will encounter, and the Government are grateful to him for undertaking this task. I shall, of course, keep the House informed of developments.

Mrs. Thatcher: Is the Prime Minister aware that we warmly welcome his speedy response to the initiative proposed by my right hon. Friend the Member for Cambridgeshire (Mr. Pym) from this Box? Is he aware that we also welcome his happy choice of the right hon. Member for Anglesey (Mr. Hughes) for this task? We wish him great success in his endeavours. We recognise that his mission is crucially important to Rhodesia—indeed, to the


whole future of Southern Africa and perhaps to the balance of power in the West
.
Because of the great delicacy of the right hon. Gentleman's task and because of the changing situation in Rhodesia, I shall confine myself to one question. It is better that we await the results of the reconnaissance before detailed cross-examination is made. My question is for clarification.
I understood the Prime Minister to say that the conference that one hopes will follow this mission will be based upon the Anglo-American proposals. The Prime Minister then went on to say that there would be need for compromise. That sounds as if the conference is to be only on the Anglo-American proposals and that it is unlikely that anything else will be considered. I hope that the conference will not be confined to those proposals or, indeed, to a compromise upon them. I hope that the conference will be prepared to consider any proposals which are likely to lead to the successful conclusion of affairs in Rhodesia.

The Prime Minister: The right hon. Member for Cambridgeshire (Mr. Pym) put forward his suggestion for an all-party conference on 7th November. That brought my mind more sharply into focus. As I told the right hon. Gentleman at the time, I had received similar proposals from private individuals in Rhodesia. It seemed to me that if there was support for this it was worth while doing. At the same time, I did not think that it was right to go straight to an all-party conference but that we should undertake—in the right hon. Lady's words—a reconnaissance to see whether there were prospects. It would be unfortunate if we called such a conference and found that there was no prospects of progress because people were simply making public speeches to one another.
I am grateful for what the Leader of the Opposition has said, particularly about my right hon. Friend the Member for Anglesey (Mr. Hughes). I hope that he will leave knowing that he commands the confidence of the great majority of —if not all—right hon. and hon. Members of the House. [HON. MEMBERS: "Hear, here."] When he returns, we shall listen to what he has to say and take it seriously into account.
The Leader of the Opposition asked about the basis of such a conference. I shall leave a lot to my right hon. Friend's discretion. It is right that we should begin the conference by putting forward the Anglo-American proposals—that is, the Anglo-American position on the matter. They represent the principles which have been worked out following intensive consultation with the parties. They have been refined in the light of many subsequent conversations. I think that we should begin with that. But I. would not dissent from what the right hon. Lady has said. If other proposals come forward which secure the consent of all the parties and they match the principles which have been adhered to by both sides of the House, clearly we should not then stick rigidly to the Anglo-American proposals.

Mr. David Steel: I welcome the Prime Minister's initiative and his willingness to convene a conference. The right hon. Member for Anglesey (Mr. Hughes) has ministerial experience in these matters but he is not a member of the Government. This should be regarded as an extra qualification both in Rhodesia and in the surrounding States. The right hon Member is a senior and respected figure in the House of Commons. He carries with him the hopes and best wishes of the House as a whole for the success of the mission. We all hope for a positive response to his inquiries. We all accept that this might be the last opportunity for Rhodesia to prevent the slide into anarchy.

The Prime Minister: I am obliged to the right hon. Member. My right hon. Friend's independence and the fact that he is not a member of the Administration but is a Member of the House should commend him as an independent-minded person to all in Southern Africa. I am sure that he will go with confidence in view of what has been said.

Mr. Grocott: Does my right hon. Friend agree that events move swiftly in Rhodesia? Since the Anglo-American proposals, perhaps the main feature has been the failure of the internal settlement, its inability to command the support of the people of Rhodesia and its inability to see any end of the civil war. Does my right hon. Friend agree, therefore, that if any future conference is to


be realistic it must face the facts, which are that the Patriotic Front has the support of the bulk of the black Rhodesian population and that it must play a crucial part in the settlement?

The Prime Minister: I believe that it is the view of everyone in the House that the Patriotic Front has a part to play in the settlement. No one, I hope, will have a veto over the settlement, although it is important that we should secure the agreement of everyone if we are to get peace in Rhodesia. I should prefer not to be drawn into condemning or applauding particular groups. I always remember what Clem Attlee said to me when he appointed me in 1947 for the first time to a post in the Ministry of Transport. He gave me two pieces of advice. I shall neglect the first, but the second was "If you are going to negotiate with somebody tomorrow, do not condemn him today." With the permission of the House, I shall restrain myself from any comments.

Several Hon. Members: rose—

Mr. Speaker: Order. I propose to call three hon. Members from each side of the House.

Mr. Amery: Will the Prime Minister recall that when the Foreign Secretary and Mr. Vance last spoke with the transitional Government in Salisbury they advocated an all-party conference without any preconditions? It now seems that the right hon. Gentleman is putting forward preconditions in the sense that the discussion has to be about the Anglo-American proposals. Will the right hon. Gentleman make clear to the right hon. Member for Anglesey (Mr. Hughes), whom he is sending out on this venture, that if the substance of the Anglo-American proposals—namely, a British resident commissioner with powers over security and law and order—leads to any attempt to amalgamate the guerrilla forces and the security forces as part of the proposals, the mission is doomed to failure from the start?

The Prime Minister: I note the right hon. Gentleman's pessimism. My right hon. Friend is not going to Rhodesia to negotiate. It would be extremely strange if, after all the many months of discussion, we were to depart from the Anglo-American proposals as the basis of our approach to such a conference, especially

as there is at the moment no agreed basis that would take its place. That is where we start from, that is what we have agreed with the Americans, that is what we have refined and restated to the parties, and that is where we stand.
No doubt my right hon. Friend will collect opinions on these matters, although he will not negotiate. He will return to the House with his view as to whether it is worth while calling a conference. He may return and tell us that it is not yet worth while calling a conference. We may have to wait a little. However, I am ready to rely on his discretion.

Mr. Ioan Evans: Does my right hon. Friend realise that both sides of the House will be glad that he is taking this initiative in sending my right hon. Friend the Member for Anglesey (Mr. Hughes) on the mission? My right hon. Friend has great knowledge of Rhodesia. He was Minister of State, Commonwealth Relations Office, and he understands the problem. If he is successful in getting an all-party conference, does my right hon. Friend the Prime Minister agree that in the meanwhile we must maintain sanctions on the illegal regime, which has not been recognised by any Government outside Rhodesia? Does not that illustrate the unwisdom of 120 Conservative Members not accepting the advice of the Leader of the Opposition and trying to end sanctions?

The Prime Minister: The issue of sanctions will not arise on my right hon. Friend's mission. They have recently been agreed by the House and, therefore, they will continue for another 12 months. I do not think that my right hon. Friend will need to discuss sanctions. What reception will my right hon. Friend receive? I have been in touch with all the major African parties concerned—I have not had replies from absolutely everybody—and I am glad to say that there is overwhelming assent to the proposal.

Mr. Rhodes James: Is the Prime Minister aware that, despite the differences between us about the handling of this matter in the past, we are united in our desire for a peaceful solution to the problems of Southern Africa and Rhodesia? Furthermore, is he aware that


it is becoming urgently necessary that we restore the bipartisan approach which used to exist and which the mission of the right hon. Member for Anglesey (Mr. Hughes) may well help to accommodate?

The Prime Minister: I am grateful to the hon. Gentleman. If the House is able to speak with a united voice, although clearly with different nuances, about the handling of these matters, we are much more likely to get a settlement in Southern Africa, especially in Rhodesia. It is Her Majesty's Government's intention that we should endeavour to do so.

Mr. Alexander W. Lyon: It must be recognised that no party at the conference could have a veto, but is it not right that the parties should be accorded their significance according to the degree of support that they have inside Rhodesia? Would not it be right for my right hon. Friend the Member for Anglesey (Mr. Hughes), when he goes to Rhodesia, to talk not only to the leaders but to every shade of opinion that he can find in Rhodesia, in order to give my right hon. Friend a picture of what is happening inside the country?

The Prime Minister: I would not exclude my right hon. Friend from undertaking that additional task if he wished to do so. Basically, his purpose is to go to assess whether the public statements now being made by the leaders of the various parties are capable of modification in private negotiation when they all come together. If there is a desire to compromise, I should hasten on the side of rashness in calling a conference, even if there were no guarantee of success. If my right hon. Friend feels that he wishes to go further in his conversations, he will be free to do so.

Mr. Maurice Macmillan: I am sure that the right hon. Member for Anglesey (Mr. Hughes) carries with him the good wishes and confidence of the entire House. Are his terms of reference wide enough, as I hope, to include in his discussions the whole problem of Soviet pressures in Southern Africa and Soviet policy in Africa generally as a framework within which the Rhodesian settlement has to be achieved?

The Prime Minister: That is not part of my right hon. Friend's terms of refer-

ence. He will be discussing the prospects of a constitutional settlement. If the matters to which the right hon. Gentleman refers are raised in the course of discussion, I am sure that my right hon. Friend will respond and give the views of Her Majesty's Government as well as his own about the prospects for Soviet penetration, or any other penetration in Southern Africa. in the absence of a failure to succeed.

Mr. Molloy: As it now seems transparently clear that my right hon. Friend the Member for Anglesey (Mr. Hughes) carries the good wishes of the overwhelming majority of the House in an endeavour to bring back peace and order to Rhodesia, which will have great ramifications for Africa as a whole, will my right hon. Friend the Prime Minister consider making an appeal to all sections involved to cease all forms of hostility forthwith so that this endeavour may be launched fair and square with the chance of success?

The Prime Minister: I should like to think that the mission will result in that end, but I doubt whether it will at this stage. There are some who believe that armed pressure is the way of bringing others to the conference table. We had better allow my right hon. Friend to conduct the discussions, to make his own assessment of the prospects and then return and report.

Several Hon. Members: rose—

BUSINESS OF THE HOUSE

Mr. Speaker: Business Statement—the Lord President.

The Lord President of the Council and Leader of the House of Commons (Mr. Michael Foot): The business for next week will be as follows:

MONDAY 27TH NOVEMBER—A debate on oil spillage, on a motion for the Adjournment of the House.

At seven o'clock, the Chairman of Ways and Means has named opposed private business for consideration.

TUESDAY 28TH NOVEMBER—Second Reading of the House of Commons (Redistribution of Seats) Bill.

Motions on the Employment Protection (Variation of Limit) Order and on the


Unfair Dismissal (Increase of Compensation Limit) Order.

WEDNESDAY 29TH NOVEMBER—Debate on the European monetary system, when EEC document R/2790/1/78 will be relevant.

THURSDAY 30TH NOVEMBER—Second Reading of the Merchant Shipping Bill.

Motion on the House of Commons Members' Fund.

Motion relating to the Qualifications of Directors of Social Work (Scotland) Regulations.

FRIDAY 1ST DECEMBER—Private Members' motions.

MONDAY 4TH DECEMBER—Supply [2nd Allotted Day]: debate on a motion to take note of the 1st to 10th reports from the Committee of Public Accounts in Session 1977–78, and the related Treasury minute and the Northern Ireland memorandum.

Mrs. Thatcher: May I ask three questions of the Lord President? My first is on industrial sanctions. The right hon. Gentleman will be aware of what passed at Question Time during Treasury Questions and between myself and other hon. Members and the Prime Minister. May we have an urgent debate on the whole issue? Is the right hon. Gentleman aware that it is difficult in the House to get clear and accurate information on the steps that the Government propose to take? It seems that all announcements are made elsewhere than in the House, and it is time that we, too, were able to give our view on these matters in detail. Will the right hon. Gentleman therefore urgently provide time for a debate?
Secondly, I believe that there will be large numbers of hon. Members wishing to speak in Wednesday's debate on the European monetary system. For how long does the right hon. Gentleman propose to suspend the rule? Thirdly, the right hon. Gentleman last week announced the Second Reading of the Weights and Measures Bill. It has miraculously disappeared. Will he indicate his intentions in regard to that Bill?

Mr. Foot: Taking the right hon. Lady's questions in reverse order, I am not sure that there is any miracle about the Weights and Measures Bill. We thought

that it was advisable to have a further period of consultation. That is far from a miracle—it may be a desirable precaution.
As to whether we should have extra time for Wednesday's debate, we shall certainly consider representations on the subject. I do not know whether we should extend the debate for perhaps one or two hours, but we are perfectly prepared to consider it.
On the right hon. Lady's first question, I will consider her representations but I have no announcement to make on the subject now.

Mr. Ward: Can my right hon. Friend say whether he has considered his promise of two weeks ago concerning the possibility of a debate on the export of live animals, and will he make a statement?

Mr. Foot: I have nothing to add to what I have said about that matter, but I reiterate to my hon. Friend that I am aware of the very great concern in many parts of the House and I am sure that the time must come when we have a debate on the subject.

Mr. Graham Page: Will the Lord President ensure that a statement is made next week on the Government's intentions about the hundreds of statutory instruments lying at Her Majesty's Stationery Office unissued but which have come into operation since August? They are binding the people who have no knowledge of their content. Is that open government?

Mr. Foot: I respect the right hon. Gentleman on all subjects but especially on that subject. If he wishes, I shall certainly see whether we should have a statement on the position. I am not sure whether we should do that next week, but I shall certainly look at his representations to see what is the best way of treating the House in the matter.

Mr. Dalyell: Will the Lord President reflect on whether a statement can be made on a subject which at first sight may appear trivial and of which notice has been given to the Department of Employment and the Prime Minister's office—namely, the decision of the Department of Employment not to allow a work permit to the young Norwegian


under-21 international footballer Refuic? Will he take it from me that people in Scotland find it difficult to fathom how Mr. Ardiles and Mr. Villa can be allowed to play for Spurs but when Hibs try to get a Norwegian they are refused any kind of work permit? Will my right hon. Friend take it from me that this raises far more emotive issues than many of the subjects that have taken up 47 days of the time of the House?
In particular, can the statement make clear, since we have been approached by the General and Municipal Workers Union and the Scottish Footballers Association, whether—

Mr. Speaker: Order. May I remind the hon. Gentleman that at least 50 hon. Members wish to put questions to the Leader of the House? Many of them will not be called, especially if we have long questions such as the one that the hon. Gentleman has asked.

Mr. Foot: I shall see whether a statement can be made. I follow these matters so closely that I am well aware that Hibs are in need of direct assistance.

Mr. Donald Stewart: In view of the current talks on the Common Market fisheries policy, can the Lord President promise a debate, before an agreement is signed, on any terms that may be arrived at?

Mr. Foot: I am fully aware of the interest in the House on that subject, as is my right hon. Friend the Minister of Agriculture, Fisheries and Food. Of course, it will be necessary for the House to pronounce on these matters. We are fully aware of the feeling which has been expressed in the House in many debates and in questions to the Minister.

Mr. Greville Janner: As the Services Committee has approved the plans for the cleaning of the Palace of Westminster, and as with every day that goes by the great buildings deteriorate further and become more expensive to clean, can my right hon. Friend give us an early date when the House can consider the matter and give the approval that is apparently necessary before the work can commence?

Mr. Foot: I shall consider the possibility of a debate and a decision on that subject. It is a matter of considerable

interest in many parts of the House, and I shall look at it in the light of what my hon. and learned Friend and other hon. Members have said to me.

Mr. Montgomery: Returning to the question I put to the Leader of the House last week, may I ask whether he can tell us when we are likely to have a debate on the report of the Select Committee on Race Relations and Immigration? After all, it is eight months since the report was presented to the House. What is the point of setting up Select Committees if it is not the intention of the Government to debate their reports?
If the right hon. Gentleman comes out again with his usual argument that the Opposition should use a Supply Day for the debate, can he give me a specific example of an Opposition having to use a Supply Day to debate a Select Committee report?

Mr. Foot: I can certainly reply to the hon. Gentleman's last question. During the last Session, one of the days for the debate on the Select Committee report on the steel industry was an Opposition Supply Day. There are many other examples. On the first matter, I have nothing to add to what I have said to the hon. Gentleman last week and on a number of occasions when other hon. Members have raised the subject.

Mr. Christopher Price: Can my right hon. Friend tell us when there will be time for a debate on the present state of the Official Secrets Act, the recent White Paper and the Government's intention to reform the Act? Is he aware that since the end of the recent case there has been enormous uncertainty, particularly about prosecution policy over charges for receiving information—which the Government have already declared to the House they no longer regard as an offence? Is my right hon. Friend further aware that there will be no opportunity to question the Attorney-General in the House until January and that we must get the matter clarified before then?

Mr. Foot: I agree with my hon. Friend that there is widespread and natural concern on that subject throughout the country. Part of that concern arises directly from the fact, which is fully recognised in the Government's White Paper, that the law as it stands is unsatisfactory.


I am in full agreement with my hon. Friend on that aspect of the matter. I am not sure how soon we can have a debate or whether we can debate the matter prior to the introduction of legislation, but I shall consider my hon. Friend's representations.

Sir Timothy Kitson: When does the Lord President intend that the House should debate the excellent Royal Commission report on gambling? Is he aware that the report includes certain recommendations that may attract the Chancellor of the Exchequer's attention?

Mr. Foot: I cannot promise a debate on that report, excellent though it undoubtedly is, in the near future.

Mr. William Hamilton: Will my right hon. Friend give an assurance that there will be a debate before Christmas on the Bingham report, consequent upon our recent two-day debate on Rhodesia? Will he also give an assurance that the debate will be organised in such a way that the House can vote on the composition and terms of reference of the committee of inquiry, in order to ensure that Back Benchers will constitute a majority, so that we do not have the cover-up that is rumoured in the form of Privy Council membership of the committee?

Mr. Foot: I hope that we shall be making a statement to the House on that subject at a fairly early date. The statement will be made in a form that will allow the House to pronounce on it. I hope that it will not be long before we are able to proceed in that direction.
I repudiate any suggestion—I am not saying that my hon. Friend has lent his authority to it—that there is any intention of having a cover-up or anything of the sort. I repudiate any such suggestion or rumour. The Goverenment are doing what they promised and are listening to the representations made in the House and elsewhere. We are taking them all seriously into account in deciding the course to recommend to the House. The House itself will have the chance to decide how we should proceed.

Mr. Michael Hamilton: May we hope to hear next week that the Government have decided to release from Customs property currently impounded which belongs to Sir Humphrey Gibbs? I am sure the Lord President will agree that in the

past 13 years no man in Rhodesia has been more loyal to the Crown.

Mr. Foot: I cannot answer a question such as that at this time. I am not sure that asking about business for next week is the best course for the hon. Gentleman to take. He should put down a Question to an individual Minister.

Mr. Sever: Does my right hon. Friend agree with me that it is a long time since the House discussed national provision for sport and physical recreation? Is it not about time that the House turned its attention to this subject? Will he find time for the House to discuss the matter next week?

Mr. Foot: I cannot find time for it next week, but I shall bear my hon. Friend's suggestion in mind as one of the many subjects that we have to consider. As my hon. Friend will realise from the representations made even in this short period, there are several competitors.

Mr. St. John-Stevas: With regard to what was said about decisions being announced away from this House, is the Leader of the House aware that last Tuesday an announcement abolishing the motor vehicle duty was made in a Written Answer to the hon. Member for Birmingham, Ladywood (Mr. Sever) concerning a tax change involving about £900 million, thus preventing any questioning by hon. Members in any part of the House? Does the Leader of the House know also that, to add insult to injury, a press conference was held on the matter that afternoon?
In view of the fact that the central function of this House through the centuries has been to control taxation and to grant Supply, will the Leader of the House make sure that this sort of thing does not happen again and that we shall have an early opportunity to debate the subject?

Mr. Foot: The hon. Gentleman is misleading the House by his last words. Not a single penny will be affected without the House deciding on this matter. An announcement to the House, whether by a Written Question or by other means, does not circumvent that situation. The position concerning the proposed abolition of the vehicle duty is that there are still many processes to be gone through.


Much consultation and discussion are still to take place. That is why the announcement was made in that way.
It is also a fact, however, that there were several other matters which called for statements to the House, and sometimes a balance has to be drawn concerning extra statements which would eat into the time of other debates. Certainly nothing whatever has happened in this matter which can be said to be in any way a step to circumvent the powers and the rights of the House. All those rights are absolutely preserved.

Mr. Alexander W. Lyon: Is it likely that there will be an announcement shortly about an increase in the television licence fee, which will have to be sanctioned by a negative order in the House? Will my right hon. Friend give an assurance that that order will be debated—because a great many Labour Members oppose it—within the 40 days? In the past the Government have sometimes been remiss in this respect, and I hope that my right hon. Friend will be able to give us this assurance.

Mr. Foot: I understand the public interest in the matter. I also understand what my hon. Friend says about the negative procedure and the need to seek to preserve the rights of the House in that respect.

Mrs. Bain: Will the Lord President indicate whether before the Christmas Recess he expects that the necessary legislation to extend the budget of the Scottish Development Agency will be brought before the House? In the light of the concern following publication of the corporate plan of British Shipbuilders—and, indeed, the threatened redundancies on the lower reaches of the Clyde—will he give us a promise of an early debate on the future of the shipbuilding industry?

Mr. Foot: I acknowledge that there is widespread interest throughout the country, not only in Scotland, on the problems of the shipbuilding industry. I cannot say at the moment in what way we shall be able to debate the matter further in the House, but I will bear the hon. Lady's remarks in mind.
I cannot promise that legislation concerning the Scottish Development Agency will be introduced before Christmas. I

must keep the hon. Lady on tenterhooks until after Christmas.

Mr. Corbett: Can I persuade the Leader of the House to add to the reply that he gave to my hon. and injured Friend the Member for Peterborough (Mr. Ward) concerning the export of live animals for slaughter? Will my right hon. Friend use his best endeavours to see that we have a debate on this matter before Christmas?

Mr. Foot: It is not possible for me to give a promise of a debate on that subject, or on several other topics which have been raised, before Christmas. But the fact that I cannot give that promise is no indication that I do not recognise the strong interest of the House in the matter.

Mr. Geoffrey Finsberg: As the Secretary of State for the Environment is likely to make a statement before next Thursday on the rate support grant formula, will the Leader of the House assure us that he will not seek to penalise those local authorities which decide to serve their ratepayers properly by buying at the lowest possible price and, therefore, probably buying Ford motor cars, in defiance of his Government's foolish attitude towards Ford?

Mr. Foot: The second matter dealt with by the hon. Gentleman is one to which reference has already been made, and I have already dealt with it.
I understand that my right hon. Friend the Secretary of State for the Environment hopes to make an announcement tomorrow on the settlement of the rate support grant. This is partly in reply to the question which was put to me last week. The relevant order and regulations will be laid before the House in the usual way next Wednesday. In arranging the date of the debate, I shall endeavour to allow as big an interval as possible so that right hon. and hon. Members may be able to consider the proposals. We shall be following the usual practice in this matter.

Mr. Ashton: Is my right hon. Friend aware of the great controversy concerning the financial state of the BBC, which will literally be bankrupt by February? Will he give an assurance that if the television licence fee is increased the House will not


have merely 20 minutes for questions about it and that if £90 million is to be taken from the public we shall have the opportunity for a full debate?

Mr. Foot: I understand the public interest in the matter but, as I have already pointed out, the number of debates that we can manage before Christmas is another question.

Mr. Marten: Will the Leader of the House give an assurance that early next week the Minister of Agriculture, Fisheries and Food will come to the House and, as he usually does, make a statement about the fisheries and agriculture meeting? Will a Treasury Minister come to the House at the same time and give his apologies, explaining to the House why the Treasury always funks giving statements after important Council of Ministers meetings? The Treasury always tries to get away with it by giving Written Answers in Hansard. Is not this a disgraceful practice on the part of the Treasury?

Mr. Foot: I repudiate any suggestion that the Treasury always funks giving statements or answers on this subject. Many charges could be made against my right hon. Friend the Chancellor of the Exchequer—I might be able to think up a few of my own—but the idea that he in any sense funks any issue is not one that would appeal to hon. Members in any part of the House.
It is true, of course, that the fisheries question is of major interest and importance to the whole House. I cannot promise that my right hon. Friend the Minister of Agriculture, Fisheries and Food will come to the House and make a statement on the subject at the beginning of next week, but we are fully aware of the rights of the House in this matter and we are determined to preserve them.

Mr. Madden: Will my right hon. Friend confirm or deny reports that the television licence fee is to be increased within a few days? In view of the intense interest in this matter, will he give a clear assurance that he will arrange for a parliamentary debate, as many of us believe that this discredited and outdated poll tax should be abolished at the earliest opportunity?

Mr. Foot: I will not confirm or deny reports which may have appeared in the

newspapers on this and many other subjects. If I attempted to do that, I should be doing nothing else. I understand what has been said by my hon. Friend on the subject but there are not many debating days left before Christmas, and to some extent they have to be allocated.

Mr. Eldon Griffiths: Reverting to the question asked by my hon. Friend the Member for Chelmsford (Mr. St. JohnStevas), is the Leader of the House aware that many Members on each side of the House took a very poor view of the vehicle excise duty changes being announced in a Written Answer? Now that we are to have the enormously important rate support grant settlement announced tomorrow, on a Friday, and not on a Government business day, does it not appear that the House is being bypassed?
Will the right hon. Gentleman answer two quite precise questions? What is the status of the document issued by the Minister of Transport on the edict? Is it a White Paper, a Green Paper or merely a statement of some long-term vague intention? Secondly, as there is grave concern in the motor industry and in the rural areas about what is proposed, will the right hon. Gentleman guarantee that we can have a debate on this matter before Christmas?

Mr. Foot: The suggestion that the House is being bypassed in this matter is absolutely false and there is no basis for it whatever. What has happened is that the House has been given an early indication of the Government's view on the matter, and there will be ample time for general consultation on it. There will be Questions in the House to my right hon. Friend the Secretary of State for Transport next week, but that is only the beginning of the process. Thereafter there will be lengthy opportunities for debate, and the proposal will not be carried into effect for some years. The House of Commons will have all its full rights protected throughout the whole of that period. For hon. Members to suggest that the House is thereby being bypassed is a gross abuse of the English language.

Mr. Spearing: Does my right hon. Friend agree that there may not be the same time for the decision about the European monetary system? On what motion is the debate next Wednesday


likely to arise? As the Green Paper tomorrow is a Green Paper, when will the Government's conclusions be announced? Will it be in the debate or shall we hear beforehand?

Mr. Foot: The purpose of a Green Paper is to give the House and country an indication of a matter on which the Government present their tentative views. That is the meaning of a Green Paper. There will be consultation with the House in the debate next Wednesday. Our proposal is that the debate should take place on the Adjournment. As I said in response to the Leader of the Opposition, I think that there should be some extension of the time to enable many hon. Members to take part in the debate. That will not be the conclusion of the matter. In view of the elaborate efforts which have been made to ensure that the House has these matters brought before it, far from being bypassed—my hon. Friend did not use that expression—the House will be given full opportunities to debate and decide these matters.

Mr. Emery: As the right hon. Gentleman has kindly arranged a debate on oil spillage, at the request of a number of hon. Members this time last week, and as he normally has to bear the slings and arrows of the House, I should like to thank him for meeting our wishes. But how will that debate arise? Will it be wide enough to cover the matters set out in early-day motion no. 53 on coastal oil pollution, which has now been signed by 132 hon. Members, so that they may be raised in the debate?
[That this House, recognising the very considerable concern, particularly on environmental grounds, of those who live in coastal areas of Great Britain and noting the major criticisms of existing plans and preparations to deal with oil pollution around the coasts of Great Britain made by the House of Commons Select Committee on Science and Technology, urges Her Majesty's Government immediately to take action to bring up to date, in conjunction with local authorities, the military and other interested organisations, the emergency procedure for use in event of major oil pollution at sea, to ensure that there are established reserves of modern equipment that can be drawn on by local authorities to deal

with coastal pollution, to recognise the need for the emergency planning to be reviewed and up-dated at least every two years, and to transfer the responsibility for the co-ordination of all matters concerned with coastal pollution to a Minister in the Department of the Environment in co-operation with the Scottish and Welsh Offices.]

Mr. Foot: I suggested that the debate on Monday should be on the Adjournment. We have arranged the debate precisely in this way to meet the representations which were made last week and earlier. We thought it a further advantage because it would alleviate a situation which might otherwise arise on Second Reading of the Merchant Shipping Bill and injure proper debate. Therefore, what we have proposed kills two birds with one stone. I am grateful to the hon. Gentleman for recognising how thoughtful our advice to the House has been.

Several Hon. Members: rose—

Mr. Speaker: Order. If hon. Members are brief, I shall be able to call all those who have already been standing.

Mr. Litterick: Speaking of oil spillage, as the Leader of the House has been unable to accede to the requests by my hon. Friends the Members for Lewisham, West (Mr. Price) and for Fife, Central (Mr. Hamilton) respectively on the subjects of the Official Secrets Act and the Bingham report, may I ask him to undertake to lean a little—or a lot—on the Attorney-General so that he might be as assiduous in his pursuit of those who treacherously and persistently violated the sanctions policy on Rhodesia as he was in his pursuit of the journalists Campbell and Aubrey, who were merely doing honest journalists' jobs?

Mr. Foot: I make no comparison between those cases. I should have thought that my hon. Friends, so far from thinking that what I said about the Bingham report was unsatisfactory, would recognise that we have taken full account of the debates, as the statement that we shall be making will indicate.

Mr. Michael Morris: Will the Lord President kindly spell out exactly how the rate support grant order is to be announced tomorrow? Is he suggesting


that he has listened to the representations which I made last week that the Secretary of State should come to the Dispatch Box and make a statement here, or is he merely wrapping it up in what is traditionally the Written Answer?

Mr. Foot: The statement will be made in the normal way. My right hon. Friend is not coming to make a statement here. We have to take account of the rights of other hon. Members. I should have thought that what I have proposed fully met the representations which were made by many hon. Members on this subject. I repudiate the idea that anything secretive or out of the ordinary has been done in this respect. We are giving the House a full opportunity to hear what is proposed, to enable hon. Members to consult their local authorities and to come to the proper decision in the debate at the proper time.

Mr. Hoyle: Knowing the great store that my right hon. Friend sets on debates in the House, may I ask him to ensure that the Treasury papers on the EMS are published so that we may have a fully informed debate on the subject?

Mr. Foot: I think that my hon. Friend had better wait and see the Green Paper which is to be published. He will see the issues which it discusses. I believe that my hon. Friend and others will then find themselves fully qualified to engage in the debate. I am sure that there will not be much backwardness on his part or on the part of many of my hon. Friends.

Mr. Nicholas Winterton: Will the Lord President find time in the near future for a general debate on roads and planning? My local authority, the Macclesfield borough council, is endeavouring to give a joint presentation to the public in the area but it is unable to do so because of lack of co-operation and decision by the regional office of transportation. Roads are important. Will the right hon. Gentleman find time for a debate at a relatively early date?

Mr. Foot: Of course this is an important matter, but I cannot promise an early debate. No doubt the hon. Gentleman will be putting questions to my right hon. Friend next week. I am aware that my right hon. Friend the Secretary of State for Transport is also eager to have such a debate.

Mr. Loyden: Does my right hon. Friend agree that while the latest improvement in employment is most welcome—in other words, the fall in unemployment—this remains the most serious problem facing the country and the Government? Is he aware that in my area there are two major factories where closures or redundancies are threatened and that they will add to the already unacceptable level of unemployment on Merseyside? Will he now consider my constant appeal for a full-scale debate on unemployment to consider ways and means of dealing with it?

Mr. Foot: My hon. Friend has rightly and naturally been most persistent on this subject. I agree that this is the major domestic question facing the country. Naturally, therefore, there is pressure for debates on the subject, because it affects the country in general. I am sure that those opportunities will arise. There will be an opportunity for debate tomorrow. I know that the debate tomorrow refers particularly to the situation in the North-East, but the motion is a general motion and there will be a full opportunity for raising this matter.

Mr. Adley: Is it true that the Prime Minister has received a letter from Mr. Brezhnev suggesting that if Her Majesty's Government agree to the sale of Harriers to China the Soviet Union will not only regard it as damaging to British-Soviet relations but will consider it as entitling it to take up an even more hostile stance against the Chinese Government? In view of the implications not only for Britain but for the world, will the Lord President say whether it is true that the Prime Minister has received this letter and, if so, ensure that we have an urgent and early debate on the whole subject?

Mr. Foot: I cannot promise an early debate on the subject and I cannot undertake to enter into a discussion of the Prime Minister's correspondence now. This matter should be raised in other ways.

Mr. Ron Thomas: My right hon. Friend indicated that it was critically important that the House should have all available information on the European monetary system. He then said that we should have a Green Paper. How are we to know how much of the Treasury document is in that Green Paper? I urge


my right hon. Friend, in the interests of the open government that he has always pursued, to lean on the Chancellor of the Exchequer to get that document published, otherwise, as the Chancellor said this afternoon, all we can do is to read distorted versions in the press.

Mr. Foot: I heard what my right hon. Friend said in his reply this afternoon. I do not believe that the House will be inhibited in the debate on Wednesday. My hon. Friends should first see the Green Paper. They will then be able to form their own conclusions upon it. I repudiate the idea that it is impossible to debate the subject because every document applying to the matter has not been published.

Mr. Lawrence: In view of last week's ruling by an American court upholding the evidence of American scientists to the effect that the fluoridation of water supplies in America might be causing 10,000 excess cancer deaths a year in America and rejecting the evidence given by the doctor and statistician upon whom this Government place a great deal of reliance in the matter, and in view of the fact that the whole question of fluoridation being imposed by non-elected authorities raises substantial questions involving the liberty of the subject, will the Lord President consider having an early debate upon the whole subject so that the country may know where Parliament stands on the matter?

Mr. Foot: I must reply on this matter as I have replied on many others. I fully recognise the importance of the subject, but I cannot promise an early debate if we are to be able to proceed with the other debates that we are to have, all of which are pressing, up to the time when the House departs for Christmas.

Mr. Crouch: Is the Leader of the House aware that many hon. Members, many people outside, and The Guardian are becoming increasingly worried at the activities of the Department of Transport and the Secretary of State over the way they are treating Parliament, the House of Commons and the public in general with a somewhat arbitrary approach to decision making? There has been reference this afternoon to the

decision already taken by the Secretary of State without the consultation of Parliament concerning road fund licensing and petrol tax.
I am concerned at the presence this afternoon of the Secretary of State for Transport in Brussels, where he and his counterparts are considering a document which has been prepared for his Department on the size and length of juggernauts. Will the Leader of the House assure me that there will be no decision to permit heavier or longer juggernauts until the House has decided upon the issue?

Mr. Foot: Hon. Members will have the opportunity of putting questions to my right hon. Friend next week. He will be answering Questions in the normal way. In response to the hon. Gentleman's first question, let me underline afresh that it is nonsense to suggest that by making a statement in the form of a Written Answer we were bypassing the House of Commons. The hon. Gentleman should recognise that. My right hon. Friend was giving the House an early indication of the Government's view on the matter, and there will be ample opportunity inside and outside the House for discussion before it is put into effect. I hope, therefore, that hon. Members will not use language which seems to imply a derogation from the powers of the House when we are abiding exactly by the rules that have always prevailed.

Mr. St. John-Stevas: Surely the Leader of the House is not correct on this. A firm decision is contained in the White Paper. We are saying that that decision should be announced in the House so that hon. Members may have a chance of questioning it. Otherwise, if the right hon. Gentleman's argument is valid, we might just as well have the Budget Statement made by way of a Written Answer.

Mr. Foot: A more ridiculous proposition was never advanced, even by the hon. Gentleman. It is not the case.

Mr. Humphrey Atkins: That is the right hon. Gentleman's argument.

Mr. Foot: No, it is not my argument. I do not know whether the Opposition Chief Whip wants to enter into this debate. If he wishes to do so, we shall be very happy to listen to his maiden


speech, and we look forward to hearing from him on future occasions.
I say to the hon. Member for Chelmsford (Mr. St. John-Stevas) that it is perfectly normal practice for the House to be given an indication of the Government's view on a question. Opportunities are then given for consultation, discussion, debate and decision. All those opportunities will be available in this case, and, therefore, there is no comparison whatever, as the hon. Member for Chelmsford seemed to suggest, between what has happened here and putting the Budget in a Written Answer. I think that when the hon. Gentleman has had time to consider, he will want to withdraw those ridiculous words.

BALLOT FOR NOTICES OF MOTIONS FOR MONDAY 11TH DECEMBER

Members successful in the Ballot were:

Mr. Peter Viggers

Mr. Austin Mitchell

Mr. Bryan Davies

Orders of the Day — BANKING BILL

Order for Second Reading read.

4.25 p.m.

The Minister of State, Treasury (Mr. Denzil Davies): I beg to move, That the Bill be now read a Second time.
The proposals in the Bill are by no means new to the majority of hon. Members. They were first published in outline in a White Paper as long ago as August 1976. The Bill was published in draft in July this year, and as now introduced it does not differ in any fundamental respect either from the original White Paper or from the draft Bill of July.
The background to the Bill will be familiar. Unlike most other advanced countries, we have never had a comprehensive system of authorisation for banks. A number of statutory recognitions exist, granted by Government Departments, especially the Department of Trade, in consultation with the Bank of England; and, of course, the Bank has traditionally supervised the primary banking system on an informal non-statutory basis. These arrangements worked well for many years and gave the British banking system a stability envied by many other countries with more formal methods. But, especially in the late 1960s, many institutions grew up outside the primary banking system. The secondary banks crisis of 1973–74 led to a general recognition that it was necessary to take a comprehensive look at the regulation of institutions which took deposits from the public. At the same time, the EEC was devising plans for the first stages of harmonisation of European banking systems. It seemed likely that these would be based on a system of prior authorisation of all banking enterprises. The first EEC directive on credit institutions was adopted in December 1977, with the full support of the United Kingdom.
Thus the Bill has a single objective, and that is the protection of depositors. It will remedy the gaps in supervision of the deposit-taking sector revealed by the 1973 crisis and also fulfil our obligations under the EEC directive. At the same time, it seeks to preserve as much


as possible of the flexible approach which has characterised the Bank of England's supervision of the primary banking sector. That supervision will be put on a statutory basis, and the Bank's responsibilities will be extended to cover all deposit-taking institutions, other than those already supervised under other statutes.
The Bill has been the subject of wide consultation since the publication of the White Paper in August 1976. I take this opportunity of thanking all those, both individuals and associations, who have taken a great deal of trouble in scrutinising our proposals and giving us the benefit of their comments. My thanks go particularly to the British Bankers Association, the Committees of London and Scottish Clearing Bankers and the Finance Houses Association. I think I can say that they all accept the fundamental principles of regulation and supervision embodied in the Bill, and many of its details reflect points which they have made. In general the Bill has received warm support, and I am sure that it is the better for this consultation process. I shall deal briefly with some of the changes which have been made as a result of these consultations as I go through the Bill.
The basis of the Bill is that all deposit-taking businesses which are not specifically excluded will require authorisation from the Bank of England and will be subject to its continuing supervision. Authorisation may take the form either of recognition as a bank, which will be accorded to institutions satisfying a wide range of exacting criteria, or of a licence to take deposits. In general, only recognised banks will be allowed to call or describe themselves as banks. To a large extent, this structure formalises the existing situation.
There are at present many deposit-taking institutions which would not claim to be banks or seek to become banks but which are highly respectable and fulfil a very useful function. This will continue to be the case and such institutions will form a natural part of the licensed sector. Other institutions in that sector may well have aspirations to attain recognised status in due course and to that end will be seeking to develop their range of ser-

vices and build up their standing in the financial community as potential banks.
It is not intended to erect barriers to movement to the one sector from the other provided that the relevant criteria are fulfilled. Again, this parallels the existing situation where the difference between the primary banking sector and other deposit-taking institutions relates essentially to differences of current function and standing as a bank and does not preclude the possibility of progression.
I might mention here that it was represented to us that the proposal that licensed institutions should pay fees to the Bank of England to cover the costs of their supervision was inconsistent with the position as I have described it, and it would have borne particularly hard on the smallest institutions. The Government acknowledged that these representations had force and that the regulation by the Bank of the licensed sector could be regarded as a natural extension of its traditional central banking responsibility for the supervision of banks proper. As a result, we no longer propose that there should be fees for licences. This will not add to public expenditure because, as explained in the explanatory and financial memorandum, expenditure by the Bank of England is not classified as public expenditure.
It may be of some assistance to the House if I go through the clauses of the Bill. Part I of the Bill sets up the general system of control and supervision. Clauses 1 and 2 contain a general prohibition against deposit-taking in the course of a deposit-taking business by any person other than a recognised bank, a licensed institution, a body exempted by schedule 1 or the Bank of England. The bodies exempted in schedule 1 are in general already supervised under other statutes. They include notably the building societies, the trustee savings banks and National Girobank—or, as it appears in the schedule, the Post Office. Building societies are supervised by the chief registrar. The trustee savings banks are now moving towards the private sector and should by the early 1980s have developed sufficiently to bring them within the supervisory system of the Bill. National Giro-bank is excluded from the Bill because it is responsible to Ministers and is already subject to a system of supervision very


like that which will be carried out by the Bank under the Bill.
In clause 1, the definition of "deposit" goes wide and includes current accounts and loans made against the issue of debentures and similar securities. However, it is not our intention to bring within the ambit of control ordinary trading companies raising capital in the normal way for the purpose of the capitalisation of their business. The definition of a deposit-taking business will exclude genuine cases of this kind. The definition of "deposit" excludes loans made by recognised banks and licensed institutions—including inter-bank loans, loans by schedule 1 bodies, loans by moneylenders and intra-group transactions, and as a result of representations it will exclude loans made to institutions by persons who are closely connected with them. Thus, an institution borrowing solely from, say, connected depositors would be excluded from the control which is designed for the protection of the public at large.
Clause 3 and schedule 2 set out the criteria for recognition as a bank and for licensing. The criteria covers a wide range of aspects of the institution's business, including its management and capitalisation. The Bank of England will give further guidance to institutions about the application of these criteria in the annual report which clause 4 requires it to make to the Chancellor of the Exchequer. This report will be laid before Parliament by the Chancellor, and it will, of course, be open to the House to raise questions upon it. No doubt the Select Committee on Nationalised Industries will wish to take an interest in it.
Clause 5 deals with the procedure for applying for recognition or a licence, and clauses 6 to 10 deal with the Bank's powers to revoke a licence or recognition. Revocation is a serious step and will not be undertaken by the Bank lightly. Various procedures are open to the Bank. Where it considers that an institution which is in trouble may within a reasonable period be restored to health, it may issue a conditional licence. The conditions may cover almost any aspect of the institution's business, and where urgent remedial action is necessary in the interests of depositors a conditional licence can be imposed with immediate effect. However, in the most serious

cases, revocation of all deposit-taking authority may be necessary. In such cases the Bank may issue directions to the institution. These will have immediate effect and will have the general purpose of safeguarding the assets of the institution in the interest of depositors until all outstanding deposit liabilities have been paid off.
The next section of the Bill deals with appeals from decisions of the Bank of England. These appeals will be directed in the first instance to the Chancellor of the Exchequer. But I should make clear that he will be acting in a quasi-judicial and not in a ministerial or political role. All appeals will be referred to a completely independent tribunal whose hearing will constitute a statutory inquiry within the meaning of the Tribunals and Inquiries Act 1971. Clause 13 allows for a further appeal to the courts.
Clauses 14 and 15 are miscellaneous provisions relating to licensed institutions, requiring them to notify to the Bank changes in their control and management and to keep copies of their accounts available for inspection by the public.
Clauses 16, 17 and 18 confer various powers on the Bank of England to obtain information and investigate the affairs of an institution, and to petition for the winding-up of an institution. These are back-up powers, and I hope that they will not have to be frequently used.
Clauses 19 and 20 deal with the protection of the confidentiality of information relating to institutions authorised under the Bill. It is clearly necessary to protect such commercially sensitive information. The Bank is, however, empowered to pass information to the Treasury, the Secretary of State for Trade, overseas supervisory authorities and the Deposit Protection Board in carefully defined circumstances. Clause 20 allows the Secretary of State to pass to the Bank of England information obtained under the Companies Acts.
Before I pass to part II of the Bill, it may be of help if I take a general look at the effects of part I. The Bank of England now supervises on an informal basis about 200 United Kingdom-incorporated institutions, as well as maintaining contact and holding prudential discussions with 180 branches of overseas


institutions whose supervision is essentially the responsibility of their supervisory authorities abroad. We expect the number of institutions initially authorised under the Bill to be around 500. This figure is bound to be a rough estimate, since we cannot be sure how many small deposit-taking institutions may exist of which the Bank is unaware. Perhaps rather more than half of the 500 may qualify for recognition as banks, though it is obviously difficult to be precise.
It is not the intention to put small institutions out of business. Existing institutions will be given every chance to meet the criteria for a licence. The fixed minimum capital requirement will not apply to the existing institutions, although they must have adequate capital to support their activities. If, in spite of this dispensation, they do not immediately meet the criteria for a full licence, the Bank has the power to issue a transitional licence. This can give the institution up to two years to bring itself up to the standard required for a full licence. The Bank must, however, be satisfied before granting a transitional licence that the institution's management is honest and competent. As I have mentioned, licence fees, which would have borne particularly hard on the smallest institutions, are no longer proposed by the Government.

Mr. Peter Emery: Will the Minister comment on the criteria for the qualification of a bank involving retail banking deposit structures, the issue of cheque books and so on? Much, of this banking has been done not only on the retail side but in merchant banking and some would argue the need for growth in that sector. Therefore, the requirement on the retail banking side may become supernumerary to the activities of industrial banking. Will the Minister give an assurance that the requirement to have a cheque book on the retail banking side would not necessarily be held to?

Mr. Davies: Perhaps we can discuss this matter further when we examine the Bill in detail. Eventually the Bank of England will have to decide on the criteria set out in the legislation and will examine all factors before deciding whether an institution can call itself a recognised bank. However, I take the hon. Gentleman's point.
The system is not intended to restrict competition; this deals with the hon. Gentleman's point in a general way. The numbers of institutions already involved will ensure a healthy degree of competition, and there will be no deterrent" entry fee" for new institutions. The specific figures for minimum capital will need to be met by new institutions, but these figures are not high. Indeed, they have been set at the minimum level considered acceptable for an institution entering the business of handling other people's savings. Transitional licences will not be available to new institutions, which will have to meet all the criteria for a full licence from the start. While the Government thought it right to allow existing institutions time to adjust to the new system, the same arguments do not apply to deposit-taking institutions setting up in the United Kingdom for the first time after the passage of the Bill.
I should like to deal briefly with the position of existing institutions under the Bill. All existing institutions will be required to apply for recognition or a licence within six months of the appointed day. For the whole of that six-month period, and thereafter until the Bank notifies the institution of its decision on the application, the institution may continue to take deposits. During this period it may continue to use its banking name and any banking descriptions which it has been accustomed to use. If the institution is then granted recognition as a bank, its position will remain unchanged—that is, it may continue to take deposits and will have free use of banking names and descriptions.
If it is granted a full licence, it may continue to take deposits. But it will in due course have to change its name if it at present enjoys a banking name, and it will have to cease using banking descriptions. But we have provided generous grace periods in these circumstances. A body may continue to use its banking name for 12 months from the date of the Bank's decision and to continue to use banking descriptions for a period of six months from that date. Moreover, it may for a further period of 12 months make reference to its old name in a context where it uses its old designation—for example, the ABC Finance Corporation Ltd., formerly ABC Banking Company.
As I have made clear, it is not the Government's intention to put small institutions out of business. To institutions which are not immediately able to meet the criteria for a full licence the Bank may issue a transitional licence, so long as the management meets the criteria of honesty and competence. These licences will usually have conditions attached—for instance, requiring an institution to increase its capitalisation or to improve its liquidity to a specified degree within a specified time. An institution may hold a transitional licence for up to two years, and during that time it will have the ability to accept deposits so long as it complies with any conditions attached to the licence. These institutions will be subject to the same restrictions on banking names and descriptions as holders of a full licence.
We have, of course, to strike a balance between the proper protection of depositors and the need to give a fair chance to institutions which may have been in business for many years. I believe that our proposals do this.

Mr. Ian Stewart: Is it contemplated that it might be possible to give a renewal of a transitional licence?

Mr. Davies: That is not contemplated.
I turn now to part II of the Bill, which sets up the deposit protection scheme. No supervisory system, however effective, could or, for the health of the system, should exclude totally the possibility of an institution finding itself in difficulties. In such circumstances the Government believe that it would be entirely wrong to leave depositors with no protection for their savings. The scheme is deliberately geared to smaller deposits in that only the first £10,000 of funds deposited with a failed institution is eligible for protection, and in order to leave an incentive to prudence on the part of the depositor 75 per cent. of that sum is covered by the compensation provisions. The scheme will be financed by a levy on all recognised banks and licensed institutions according to their size. It will take the form of a small initial cash fund and a system of back-up guarantees.
I should now like to deal with the question of the exclusion of public sector institutions. This is, of course, a scheme for the protection of depositors with the private sector and not with public sector

institutions. Thus, the National Savings Bank is exempted because it has a Government guarantee. Trustee savings banks are at present moving from the public towards the private sector. They will be brought within the supervisory provisions of the Bill in the early 1980s, and at that point they will automatically become contributors to the deposit protection scheme.
I turn now to National Girobank. At present this, in effect, enjoys a Treasury guarantee. We have recognised, however, that it is in competition with institutions which will be contributing to the deposit protection scheme, and we have therefore decided that Girobank will pay to the Treasury a contribution in respect of its guarantee equal to what it would have paid under the deposit protection scheme if it had been a member. I think that that is fair because, as I have said, it is competing with institutions which will have to make contributions to the scheme.
Clause 21 and schedule 5 set up the board which will administer the deposit protection scheme. The board will be headed by the Governor of the Bank, and as a result of the representations we have received we have agreed that it is only fair that contributory institutions should be represented on it. The board will employ no staff, and its administrative work will be carried out by the Bank of England on a repayment basis. This should minimise the overheads of the scheme.
Clauses 22 to 27 deal with the constitution of the fund and the mechanism for securing contributions to it. The board will also have a borrowing power. Again as a result of representations from the banks, there will be a limit to the total liability of an institution to the scheme.
Clauses 28, 29 and 30 deal with payments out of the fund to depositors in the event of the insolvency of a contributory institution. It will be the object of the board to make payments to depositors as soon as possible after that event. Clause 30 deals with trustee deposits and joint deposits. This clause, which differs somewhat from that in the draft Bill, again reflects discussion with the banks.

Mr. John MacGregor: Is the Minister aware that among the clauses dealing with the contribution there is a clause for special contributions, which leads to a total call on the banks of approximately £140 million? Why is it necessary to have a provision on a scale


of that sort? What kind of collapse of banking institutions does the right hon. Gentleman evisage if £140 million is involved, particularly when, as is almost without doubt certain, the clearers will never be in that position themselves?

Mr. Davies: Of course, the initial scheme is between £5 million and £6 million, as the hon. Gentleman will appreciate. There are provisions in the Bill for affirmative resolution procedures to increase the amount. The figure of £140 million sounds a large one, but it represents only about 20,000 depositors with about £10,000 each. Obviously, one cannot envisage all depositors having £10,000 each in a failed institution. Looked at in that light, however, I suggest that it is perhaps not such a very large scheme. However, the present fund will be between £5 million and £6 million and at the moment there is no proposal to increase it.
Clauses 31 and 32 deal with the board's ability to recover from the dividends distributed by the liquidator of a failed institution the payments it has made to depositors, and require that these payments shall be repaid to contributory institutions rather than swelling the size of the fund.

Mr. Ian Wrigglesworth: Can my right hon. Friend say how much, for instance, one of the big four banks will have to pay to this fund as a contribution each year?

Mr. Davies: As my hon. Friend will appreciate—indeed, the Bill sets it out—there is at present a limit of £300,000 on initial contribution and on further contributions. Therefore, the maximum amount by way of initial contribution to the fund which a bank can be called upon to contribute is £300,000. As to a further contribution, again the limit is £300,000. There are these definite limits which have been put in as a result of consultations, especially with the clearing banks.

Mr. Alastair Goodlad: How will the moneys within the £5 million fund be applied, on the assumption that they will not be necessary for bailing out institutions in the immediate future?

Mr. Davies: Perhaps I can deal with that point when winding up, but I under-


stand that the moneys will be mainly invested in Treasury bills.
Part III deals with advertisements and banking names. The provisions in the Protection of Depositors Act for the regulation of advertisements are carried over in clause 33, and there is a specific power in clause 34 for the Bank to issue directions to a licensed institution concerning misleading advertisements.
Clause 35 embodies the policy that in general only recognised banks should be able to use banking names and descriptions. Special provisions are made for overseas institutions with branches or representative offices here, and for savings banks and municipal banks. Clause 36 provides for grace periods for institutions which are required to change their name because of the provisions of clause 35.
Part IV deals with miscellaneous and general matters. Clause 37 re-enacts the offence of fraudulent inducement to make a deposit contained in the Protection of Depositors Act. Clause 38 deals with representative offices of overseas deposit-taking institutions. These offices do not take deposits but generally promote and assist the banking services of the institutions and may often be transformed into deposit-taking branches at a later stage. The institution is required to inform the Bank of the establishment of such an office.
Clause 41 allows the Bank of England and recognised banks and licensed institutions, as well as institutions seeking recognition or a licence, to ask questions of their directors, controllers and managers about spent criminal convictions, and provides that such convictions may constitute grounds for dismissal, notwithstanding the provisions of the Rehabilitation of Offenders Act.
Clauses 42 and 43 are procedural provisions. Clause 44 repeals some obsolete enactments relating to banking.
Clause 45 deals with municipal banks. Seven of these are in Scotland and one in Stockton-on-Tees. They are owned by their local authorities. They will be exempted from the provisions of the Bill as long as their local authority unconditionally guarantees all their deposits. Clauses 46 and 47 contain definitions and clauses 48 and 49 deal with procedural matters.
Looking at the Bill as a whole, I should like to emphasise three main points. First, the Bank of England's supervision of the primary banking sector will be placed within a statutory framework and extended to cover those deposit-taking institutions now outside an effective supervisory system.
Secondly, the deposit protection scheme set up by the Bill will provide additional security, particularly for the smaller depositor.
Lastly, the provisions on banking names and descriptions are designed to sort out the present confusion and to prevent the recurrence of abuses of the kind which have frequently occurred in the past. All these measures taken together represent, in the Government's view, a highly desirable advance in consumer protection in the important area of people's savings.
Therefore, I believe, this is an important Bill. Unusually perhaps for an important Bill, it is one which has received a general welcome from those directly affected by it, as well as from wider interests. It makes a significant contribution towards ensuring the continued health of the financial system and the protection of the small depositor.

4.53 p.m.

Mr. Peter Tapsell: I agree with the Minister of State that this is an important Bill. But it is by no means as innocuous or non-controversial as he has suggested.
The Bill has three godfathers. The first is the EEC first Council directive of 12th December 1977, the second is the fashionable preoccupation with consumer protection, and the third is the secondary banking crisis of 1973–74.
The Bill itself is divided into three parts reflecting those three political progenitors. Part I purports to reflect the EEC banking directive by setting up a machinery for licensing all deposit-taking institutions. However, the Bill as a whole goes a great deal further in its interventionist detail than the directive requires. In certain important respects it is contrary to the spirit of the directive.
Part II proposes the establishment of a scheme to protect the consumer—in this case in his role as a depositor. It does so by setting up an expensive deposit protection scheme to be financed mainly by

the nine clearing banks. It is not a modest little scheme as the Minister has suggested; it is potentially expensive.
Part III, which controls bank names and advertisements, seeks to solve the problem of the supervision of the secondary banking sector by, in effect, announcing that it no longer exists. In future, six months after vesting day, most secondary banks are to be known as licensees—institutions licensed to accept deposits, but forbidden to describe themselves as banks or as conducting the business of banking. The Minister said it was not the intention of the Bill to put any of these small businesses out of action, but I assure him that a number of them are extremely concerned that that might be the precise effect.
The fundamental question that the Bill raises is whether the Government, in this legislation, are over-reacting to the three political influences to which I have referred. The licensing of all deposit-taking institutions is generally welcomed by those engaged in the business. Moreover, it is enjoined upon us by the EEC banking directive.
Article 3(1) of that directive is the key provision from our point of view. It reads in part:
Member States shall require credit institutions, subject to this Directive, to obtain authorisation before commencing their activities.
In article 3(2) the directive says:
the competent authorities shall grant authorisation only when the following conditions are complied with…
These conditions which are then listed are duly included in this Bill. So far, so good. But the Government might have been wise to confine their Bill to the terms of the directive. Instead, they have chosen to take this opportunity to grasp the nettle of banking status and categorisation. The Minister glossed over this and seemed to imply that everyone agreed that it was necessary to go very much further and introduce this elaborate new licensing system. Here again, the Government have moved into an extremely controversial position.
It is an apparent oddity that Britain is the only country in the advanced world which has never given an exact legal definition of the meaning of the words "bank" and "banker". Many people


would say that this is one reason why our banking system has always been so successful, and why the City of London has retained its international pre-eminence when so much around it is in decline and decay.
The Bills of Exchange Act 1882 described "banker" as
a body of persons whether incorporated or not who carry on the business of banking".
That is the splendidly circular and uninformative definition which is characteristically liberal in tone.
Section 4 of the Bank of England Act 1946 defines "banker" as
any such person carrying on a banking undertaking as may be declared by order of the Treasury to be a banker for the purposes of this section.
Certainly that has the modern authoritative ring of Socialist bureaucracy. Fortunately, it has proved meaningless because no such declaration has ever been made by the Treasury and no directions have been issued.
In this Bill, after centuries of successful banking, a British Government are seeking for the first time precisely to define what constitutes a banker and a bank. Clearly the parliamentary draftsmen have not found it altogether easy. The licensing procedures in the Bill propose three categories—the recognised bank, the licensed deposit taker, and the excluded categories.
Even now, the suggested definitions are extremely subjective. Clause 3 of the Bill must be read in conjunction with the second schedule which lays down as two of the key criteria for obtaining a licence of a recognised bank that

the institution enjoys, and has for a reasonable period of time enjoyed, a high reputation and standing in the financial community";
and that the business
will be carried on with integrity and prudence and with those professional skills which are consistent with the range and scale of the institution's activities.
It would be difficult to devise words more relevant and yet more imprecise and subjective than those. "Reasonable", "reputation", "standing", "integrity", "prudence" and so on, are essential requirements of a good banker, but judgment as to what constitutes each of those qualities would vary very much according to the judge.
These are, therefore, very much subjective matters of judgment, and the judgment will be the judgment of the Bank of England, with a right of appeal to the Treasury, whose political masters may not always be particularly well qualified to appreciate such qualities. I was, therefore, relieved to hear that they would be acting in a quasi-judicial capacity when examining such appeals.
The criteria of what constitutes a good banker are not being changed, and the Bank of England will remain the arbiter, continuing to fulfil its long-established role of prudential supervision of the banking scene. To that extent, the clauses dealing with the licensing of recognised banks are merely legalistic window-dressing, necessitated primarily by the Continental mania for codifying practices which it is our tradition to handle by custom and tradition and mutual cooperation on a more informal basis. The Minister recognised that that approach had been extremely successful in the past.
Harmonisation is the enemy of informality. The ultimate significance of codification for the future role of the Bank of England may, I suspect, eventually prove to be the most significant effect of the Bill. There is, however, nothing in the EEC directive requiring the establishment of different categories of deposit taking institutions, and nothing requiring the establishment of a deposit protection fund. On the contrary, the preamble to the directive specifically states that the eventual aim is to introduce uniform authorisation requirements throughout the Community for comparable types of credit institutions, and that this aim can be achieved only if the particularly wide discretionary powers which certain supervisory authorities have for authorising credit establishments are progressively reduced
.
There is precious little in the Bill to suggest that the Government have taken that message on board. Indeed, in the greater part of the Bill they are deliberately moving in the opposite direction to the declared intention of the preamble to the directive. They are intent, apparently on subjecting 500 British credit-taking institutions to a greater and stricter degree of regulation than hitherto, and greater than that imposed on their counterparts and competitors in many Community countries. I have serious doubts about


whether that is calculated to help the competitiveness of our financial institutions, particularly in their international business.
This brings me to a consideration of part III of the Bill, since it seems more logical to take it in this order and to leave part II to the end. Part III will forbid a considerable number of credit-taking institutions from calling themselves banks. The Minister did not say how many, and no one can be sure as yet. The best estimate that I can obtain is that it forbids as many as 50 credit-taking institutions which have hitherto called themselves banks—in one case. I understand, since as long ago as l825—from doing so in future. They would have to apply for the status of licensed deposit takers.
As the Minister pointed out, the majority of deposit-taking institutions are not banks and have no wish to become banks. The hire-purchase finance companies are an obvious and important example. But the minority which are in the business of banking are very concerned that they will not be able to describe themselves as being so in future. Some of them are well-established institutions of the highest repute others obviously have a lower standing and rating. Some secondary banks in the 1973–74 crisis were found to have acted imprudently—the most extreme example being an institution in the public sector, the Crown Agents. Others suffered no such accusation then or since.
The proposal to relegate all of them to the status of licensee has been described as rough justice. The minority of existing banks whose existence as banks is threatened see the roughness but ask where the justice is. Some of them have for many years taken deposits, made loans, run current accounts, issued cheque books, carried on foreign exchange business, provided personal financial services and advice for customers, and submitted all required information regularly to the Bank of England. In short, they are in the business of banking. Any other description would be inadequate and misleading.
If, as a result of the implementation of part III in its present form, they are to be forbidden, within a year of the implementation of the Bill, to call themselves banks, they will regard it as a

considerable humiliation, and for practical reasons that I shall describe later it would also be a serious commercial blow to them to be demoted to the new category of licensee. It is, of course, true that they will probably all change their name when the Bill comes into force from "bank" to "trust" to soften the impact of the blow, although that would partially nullify the presumed purpose of the Bill.
It is also true that of the 17 members of the Acceptance Houses Committee, only one, Hambros, has the name of bank in its official title. The great houses like Rothschild and Baring are above such considerations and will, of course, certainly be licensed as recognised banks. It is precisely the small private bank, usually in a provincial city, hoping to become the Rothschild of the future, which wants to be able to call itself a bank while climbing the ladder. Such institutions fear that if they are no longer permitted to do so the following consequences may result, and here I come to the practical anxieties of these banks.
I turn to the question of deposits first, because they are the basis of all banking. Deposits, including those from overseas, may be withdrawn from them, or, if they are to be retained, they fear that a higher rate of interest may have to be paid for them. Although a licensee must be sound if the Bank of England does its job, potential depositors may believe that a licensee must be unsound if, although apparently carrying on a banking business, it is forbidden by law from saying so.
The institutions in this category, currently enjoying banking status, may be unable to obtain deposits, whether in the primary or secondary market, on the same basis as before—and again, the essence of all banking is competitive rates at which one can obtain one's deposits. Solicitors will be prevented from depositing funds with them. Trustees may feel themselves inhibited from doing so. They may also lose the ability to deal in the inter-bank market if their banking status is removed from them.
There are many other technical considerations more suitable for discussion in Committee but which nevertheless are of great importance to the institutions in this category. So I say in all earnestness to the Minister—and I am sure that he


was addressing the House with complete sincerity—that he was incorrectly advised in telling us that the Bill will not and is not intended to put small businesses out of action. For the reasons I have described, there is a danger that that will be its effect.
It must be borne in mind that there has always been a longish and multi-runged banking ladder up which small banks have climbed, and are still climbing, rung by rung. Movement up that ladder as a bank grows in size of its deposits, the breadth of its services, the growing skills of its management and its general reputation throughout the financial community, has traditionally been governed by successive recognitions, as they are called by the Bank of England, exercising what it calls prudential supervision, primarily through its discount department. All that is clearly set out in the Bank's evidence to the Wilson committee in June this year, which will be familiar to the House.
The Bill's effect will be to saw the ladder off about three or four rungs from the top. In future, potential recognised banks will have to climb up the licensee ladder and then make a sudden, dramatic and exciting jump from one ladder to another. Such banks ask how they are properly to acquire the skills necessary to conduct the business of banking unless they are allowed to advertise the fact that they are practising them.
The Catch 22 nature of the situation which the Government are seeking to bring into being and which faces those institutions, and the still-Gladstonian circumlocution of the Treasury terminology, reminiscent of the extract from the 1882 Act that I read out, is well reflected in the following extract from a letter from the Minister of State's own office to one of the institutions. Dated as recently as 18th September, it reads in part:
The Government policy on banking names and descriptions reflects the two-tier system, so that the use of such names and descriptions should in general be confined to the recognised sector. This should not prevent licensed institutions from describing the nature of the services they offer; it will, however, be necessary to refrain from describing them as banking services.
That is Catch 22 indeed for a business which is in fact providing banking services.

The response of such institutions to this threat can perhaps be summed up in one sentence. The Bank of England should not grant a licence of any kind to any credit-taking institution which is not sound, but if it is sound and carrying on a banking business under the normal supervision of the Bank of England the institution should be allowed to indicate that fact.
There is also an important international aspect. Part III will place the smaller United Kingdom banking organisations at a substantial disadvantage compared with their counterparts within the EEC, which will be free to compete for deposits without the serious inhibition of being unable to represent themselves as banks, and entitled to trade and to be taxed in this country as such.
Secondly, there is apparently no intention in the Bill to apply the same rigorous rules about banking names and advertising to the 180 foreign banks which have branches in this country. Clause 3(5) says that the criteria will be satisfied if
the relevant supervisory authorities"—
that is, the foreign countries' authorities—
inform the Bank that they are satisfied with respect to the management of the institution and its overall financial soundness".
Therefore, in the case of those 180 foreign banks, it will be the central banks of a great number of overseas countries which will make the decision, not the Bank of England.

Mr. Denzil Davies: The hon. Gentleman did not read out the following passage—

Mr. Tapsell: I know what it says.

Mr. Davies: There is no point in the hon. Gentleman's saying that he knows. It is very important. The subsection continues:
and (b) the Bank"—
the Bank of England—
is satisfied as to the nature and scope of the supervision exercised by those authorities.
Therefore, the final judgment rests with the Bank of England, not with the overseas authority.

Mr. Tapsell: I am well aware of what follows, but the right hon. Gentleman cannot be as naive as all that. Are we to suppose that the Bank of England and the Treasury, still less the Foreign and


Commonwealth Office, faced with a bank whose head office is, for example, in a major OPEC country, will tell the central bank of that country, possibly a large holder of sterling deposits, that it does not know its job? I am trying to avoid mentioning any names. Would that central bank be told that, and told that it should not allow the bank, whose chairman will also certainly be a close relative of the Head of State, to be called a bank at all?
I have some knowledge of these markets, and I speak from experience. If the right hon. Gentleman tells me that the Bank of England will be able to tell such countries that their prize commercial bank, when operating in England, is to be publicly stripped of its right to call itself a bank, he is living in cloud-cuckoo-land and had better consult his colleagues in the Foreign and Commonwealth Office.

Mr. Wrigglesworth: What, then, is the hon. Gentleman suggesting? Is he suggesting that we should not have the legislation, that we should not try to tighten up, but that we should simply allow the position that he is describing to continue?

Mr. Tapsell: Naturally, I shall come to that. I am building up the case for the prosecution, and then I shall give my constructive proposals for consideration.
To conclude that part of my speech, I want to make the point that, of course, the Bank of England would in practice be very chary of exercising the safeguard which the Minister has just quoted to me, and which was very much in my mind when I thought on these matters.
In practice, the Bill as drafted will have the effect of requiring the smaller United Kingdom banks to compete on most disadvantageous terms with foreign banks, both in our own domestic market and in their domestic markets. That is hardly the way to strengthen the international competitiveness of our putative banking institutions, some of which have had remarkable successes in overseas operations.
It will no doubt be argued that we are talking about only a relatively small number of United Kingdom institutions, whose total deposits amount to only a tiny fraction of those of one of the big clearing banks. But that is to miss the point. The Bill constitutes a further restraint on com-

petition. The Minister went out of his way to say that that would not be its effect, but it must be. It is a further blight visited upon the seed corn.
All the great banks in this country today started as small banks, offering a much more limited range of services and skills than they offer to their customers today, just as Morris Motors started in a bicycle shop and Marks and Spencer on an open air stall. Some of the great banking names—I think, for instance, of Lazard and Warburg—have become major institutions in the City in a span no longer than my own lifetime, and not much longer than my working life in the City. Why should we now erect what are almost certainly largely unnecessary obstacles in the way of the Lazards and Warburgs of the future?
In the belief of those concerned, part III may so reduce the deposit-taking capacity of the new-style licensee as to kill its capacity to develop a banking business to the point where it is ready to satisfy the exacting criteria for the status of recognised bank. That will cause loss of employment in the United Kingdom and an increased placing of deposits with overseas institutions. The provisions of part III are inequitable as between foreign banks and small United Kingdom banks. It will reduce competition.
Part III is a charter for the existing banking establishment, which is why the clearing banks acquiesce to it and direct their fire only at part II. Part III will tend to ossify the whole banking system of this country, as so much has been ossified in other spheres by the creeping paralysis of Socialism.
The longer-term implications of this are even more serious. Anyone acquainted with the banking system in the United States knows of the serious distortions, bordering on malpractices, which can flow from the introduction of rigidities into banking legislation. The nature of money is that it is not merely liquid but protean. The very strict banking laws in the United States, for instance, have led to many banking operations being conducted outside the American banking system—and one of the objects of this Bill, according to the Minister, is to stop that. A great deal of traditional banking business has been taken outside the banking system. American Express and Sears


Roebuck are highly respectable examples of this phenomenon, but there are others which are less respectable.
Another effect in America has been that much business is conducted by subterfuge or is conducted overseas. There are, for instance, all the curious consequences which flow from telling a great bank such as the Bank of America that it can formally raise deposits in the United States only in the State of California.
Above all, the rigidities of the United States banking laws have created the unhealthy position in which 70 per cent. of all American bank profits are earned outside the United States. General de Gaulle, of course, had his views about that. The overblown Eurodollar markets are another by-product. So, to some extent, is the weak state of the domestic United States dollar in recent years.
The City of London has held its own in a competitive world. We have tended to avoid banking rigidities in Britain and have laid much emphasis on flexibility. Although I admit fully that it will not involve all the consequences which I have been describing in America, part III of the Bill is undoubtedly a step in the wrong direction.
There is no need for us to assume that all our small private deposit-taking institutions which call themselves banks are lame ducks, crooked ducks or the types of ugly ducklings which will never transform themselves into beautiful swans. The Bank of England has learned much from the secondary banking crisis of 1973–74. Although no system of supervision can be wholly foolproof or wholly crook-proof, it has adequate powers and great experience to do its job without part III of the Bill. Therefore, I hope that before the Committee stage, the Government will give further serious thought to whether part III needs to be kept in the Bill.
I come to the specific question put to me by the hon. Member for Thornaby (Mr. Wrigglesworth) about my proposal. My proposal is that if the Government, despite all my arguments, are determined to categorise banking status in this somewhat arbitrary way—and any categorisation must be arbitrary because there will always be some institutions which fall just on one side or the other of a given category, however sympathetically and

intelligently the Bank of England operates its criteria—the Government should consider the introduction of an additional category between the recognised bank and the licensed deposit taker. Such a third category could carry with it a licence permitting the institution to describe itself as licensed to carry on a banking business, or some such formula.
I know that there are problems about this. It would have the effect of downgrading still further the categories below it. But on balance it is an improvement on the two-category system and one likely to overcome many of the problems of the institutions at present carrying on banking business which otherwise would not be allowed to describe themselves as so doing.

Mr. Wrigglesworth: I fail to see how the proposal which the hon. Member has just suggested would deal with the problem with which he was trying to scare us just now—that of the Middle Eastern bank which would not be supervised effectively under the Government's proposals. How would his proposal take care of that?

Mr. Tapsell: It would not solve that problem, but it would at least put the United Kingdom institution back on all fours with the foreign bank in that it would be able to describe itself on its writing paper, if not as a bank, at least as an institution licensed to carry on a banking business. I agree that it is not a very satisfactory solution, because part III creates an inherently unsatisfactory position. I am seeking to argue that if the Government are irreversibly wedded to the concept of part III, an amendment of this kind which would put the United Kingdom institutions on all fours with their foreign competitors would at least ease the position.
I come finally to part II of the Bill, which contains the proposal to establish a deposit protection scheme. The Minister described it as though it were a very minor and modest proposal, and certainly in its initial cash form of £5 million to £6 million it is fair to describe it as such. However, the Government are taking powers to be able to transform that into a vastly more expensive operation.
If part I of the Bill is the belt and part II the braces, I suppose that part III can


be described as the suspenders. But certainly this is a belt and braces operation. If the licensing system works, a deposit protection scheme is not necessary. It is not enjoined upon us by the EEC directive. No outside depositor lost a penny of his deposit as a result of the 1973–74 banking crisis. In the almost inconceivable and super-crisis event of a clearing bank failing, the scheme proposed in the Bill, even in its most extensive form, would be inadequate to deal with it.
The Minister rightly said that the deposit protection scheme dealt with small depositors. But he failed to point out that about 90 per cent. of the relevant protected deposits—a depositor is protected only up to £7,500 of his first £10,000 deposit—are with the clearing banks which do not need or want the scheme, although they will have to pay for it. It is a form of subsidy or encouragement to the smaller deposit-taking institutions which for the most part are interested only in the bigger deposits at the wholesale end of the business.
The strange feature of it is that this proposal for a protection fund is inconsistent in its spirit with the rest of the Bill which is so hostile to these smaller deposit-taking institutions. The scheme constitutes, as such arrangements always do, an underwriting of less sound businesses by the sounder businesses. This is an inherently bad principle. If it has any effect at all, it can lead only to the lowering of standards and the raising of interest rates.
The man with up to £10,000 to place on deposit will know that his money will be almost as secure wherever he places it. So why put it on deposit at a lower rate of interest with a recognised bank when he can get a higher rate of interest from one of the licensees which part III of the Bill regards as unfit to call themselves banks but which are to be covered by this deposit protection scheme that will be paid for largely by the clearing banks if anything goes wrong? It is a classic and typical example of this Socialist Government aiming for one result and encouraging the opposite result. This scheme is an open invitation to the less prudent financial institutions to bid up their rates of interest.
Another effect will be that the 20 million customers who use the clearing banks


will be called upon to provide support for those people who gain a larger return than they are getting by placing their money with more risky institutions. This will enable the riskier banks to attract customers away from the safer ones. Inevitably, there will be competitive pressure on all banks to act less prudently. It will promote the very type of financial instability against which the Bill is supposed to be safeguarding us.
I have the permission of the Committee of Scottish Clearing Banks to quote it as saying:
The Scottish Banks strongly endorse the view that there should be no need for a Deposit Protection Scheme if the supervisory and control functions of the Bank of England operate as intended; to introduce a scheme on the proposed scale can only imply doubts about the exercise of the bank's statutory powers.
I would add that is also the view of the London clearing banks. Even it one disregards all those arguments and accepts the need for a deposit protection scheme the particular methods of financing it which are envisaged by the Bill are open to serious criticism.
In the preamble to the EEC banking directive from which I have already quoted it is stated:
Measures to co-ordinate the credit institutions must, in order to protect savings and create equal conditions of competition between these institutions, apply to all of them".
I have already shown how far short of this the Government have fallen in the Bill in their treatment of our smaller banks by comparison with foreign banks operating in the United Kingdom. But there they have gone even further down the road of unequal treatment by excluding the public sector of banking from the burden of helping to finance the deposit protection scheme.
In his speech the Minister no doubt foresaw that criticism and he put up certain defences for his position. Though there is some force in each of the points he made—for instance, the fact that the trustee savings banks are to join the full banking system this year under the Trustee Savings Bank Act which we debated a few months ago in the House—I do not see why they should not be expected to contribute to the potential costs of the fund until the early 1980s, particularly since the trustee savings banks are anxious to become fully involved on an equal footing with the commercial banks as soon as possible.
When we come to the National Giro the situation is even more serious, because, as the Minister knows, the commercial banks do not accept the argument that, because it will be making a contribution to the Treasury comparable with that which would be required if it were part of the deposit protection scheme, fairness has been achieved. If there were difficulties and if there were a failure, it would be the commercial banks which would have to put up the money, stage by stage, with the Government in a position to make calls. They feel—I share their feeling, and the Minister will know that very senior bankers have written to the Treasury on this point—that if there is to be a public sector in banking it must be treated absolutely on all fours with the private sector, with which it is competing. I hope that the Minister will take that message on board and accept that the National Girobank will make exactly the same contribution in precisely the same way through the fund.

Mr. Denzil Davies: I think I made that quite clear. The National Giro will make an equal contribution through the Government, the same contribution it would have made had it been part of the deposit protection scheme.

Mr. Tapsell: I have listened carefully to what the Minister said, but the National Giro bank will be making that contribution to the Government, not to the protection scheme, and the Government are not contributing to that scheme.
One of the criticisms by the commercial banks is that neither the Treasury nor the Bank of England will be contributing to the scheme. The fact that the National Giro bank is having, as it were, money switched from one pocket to the other is irrelevant. The commercial banks want to see the National Giro making exactly the same contribution as they make to the protection scheme. If the logic of setting up such a scheme is that it is considered that ordinary people can no longer be expected to judge the strength of the institution to which they entrust their savings, the main responsibility for preserving the health of our financial system must fall upon the Government-appointed guardians, the Treasury and the Bank of England, to whom are being given these

new "nanny" powers of licensing and supervision.
If in future a licensed bank is unable to repay its depositors, that will primarily represent the failure of that supervision and not the failure of the commercial banking community. It is appropriate, therefore, as I have said, that in addition to the National Giro the authorities should be required to shoulder at least some of the burden of compensation, because a burden it is. The Bill provides for the Treasury to be given power by order—we can discuss in Committee whether it should be by negative or affirmative resolution procedure—to increase the banks' ultimate contributions liability to 0.6 per cent. of their deposit rate, which is specially defined to exclude inter-bank deposits and certificates of deposit. It therefore increases greatly the proportionate contribution which the clearing banks have to make. This 0·6 per cent. figure, which would be necessary only in a crisis considerably more grave than that of 1973–74, in which no outside depositor lost a penny because of the skill of the "lifeboat" recycling operation, would constitute at least £260 million, of which the clearing banks would have to find about £160 million.
The hon. Member for Thornaby asked the Minister whether he could break down the figures for particular banks. He was not able to do so. I checked this before the debate and I understand that even if the 0·3 per cent. of the deposit-based figure is called for it would work out at about £18 million for Barclays as a large bank, about £4 million for Williams and Glyns, a medium-size bank, and £100,000 for a relatively small merchant bank such as Arbuthnot Latham. There would be £130 million altogether from the private sector, of which the clearing banks would have to find some £80 million. That is on the 0·3 per cent. call. These figures would have to be doubled for the 0·6 per cent. call, so that we are dealing with very sizeable sums. Even the original small fund to which the Minister directed his remarks, which is to be set up immediately and which will amount to £5 million to £6 million, makes considerable demands on very small businesses because, as I understand it, the smallest licensee will have to make a £5,000 minimum contribution. Five thousand pounds


is a substantial sum for a small business to have to pay out.
The Scottish clearing banks are particularly concerned that the maximum contribution of £300,000 at each call will have a much greater impact on them than on the larger institutions, bearing in mind that the deposit base of the London clearing banks is almost 10 times that of the Scottish clearing banks. In equity, the contributions from the banks should really be on a pro rata basis. It is clear, therefore, that there will be much to discuss in Committee before we decide to give the Bill an unopposed Third Reading.
The fact which, above all, must be remembered is that the City of London is the one feature of our British national commercial activity which is still internationally pre-eminent. Never in our long history, although many of our wars were fought on its gold and its loans, have the people of this country been so dependent in their everyday peacetime lives on the overseas earnings of the British financial institutions as in recent years.
Jealous eyes are cast on that preeminence by New York, Paris, Frankfurt and Brussels and increasingly by the rapidly developing money markets of the Far East. We have frittered away so many of our advantages and opportunities in other commercial spheres where we were also once leaders. Let us, therefore, be resolute in our determination not to damage the international competitiveness of the British banking system by self-inflicted governmental follies.

5.40 p.m.

Mr. Ian Wrigglesworth: I wholly support the Minister in all that he has said in introducing the Bill. I am pleased that it has been introduced. If I were to make any criticism it would be that I wish the Bill had been introduced earlier. Much of the debate will no doubt take place in Committee. I have been tempted by the speech of the hon. Member for Horncastle (Mr. Tapsell) to make a longer speech than I had originally intended. Listening to him I began to wonder whether the Opposition intended to vote against the Bill. The hon. Gentleman laid such a damning indictment against it that I cannot under-

stand why the Opposition do not intend to oppose it.
The House should be grateful that the banks have been rather more measured in their criticism of the Bill than the hon. Member for Horncastle. Let me take his criticism of the deposit protection fund and the figures which he has quoted. How do they compare with the contribution which those whom he is seeking to protect, the London clearing banks, had to make to bail out small banks during the lifeboat exercise? It cost the shareholders—and I would have thought that the hon. Gentleman might have been interested in them—a total of £1·2 billion. That is a rather large contribution when compared with the contribution which the banks are now being asked to make to this modest scheme designed to protect consumers of banking services.

Mr. Tapsell: What we are talking about are the depositors, not the shareholders. The deposit protection scheme will not protect shareholders in any way. It is aimed only at protecting depositors. It was to that point that I was directing my remarks.

Mr. Wrigglesworth: I recognise that. The point I am making is that the contribution which is being asked of the banks is very small in comparison with the
£1,200 million which they had to contribute to the lifeboat fund to bail out the substantial number of fringe banking institutions and other bodies which collapsed a few years ago.
I draw the attention of the House to the remarks made by the banking correspondent of the Financial Times when the Government's proposals were produced. He is a respected banking correspondent who has been on the Financial Times for some time and who knows the City and the banking institutions very well. He said:
Rather than complaining about the deposit protection proposals in the banking supervision White Paper, the clearing banks should be grateful that the Government's ideas have turned out so much in the interests of the established banks.…It might have been tempting, for example, to have set up more rigid and restrictive regulations governing bank activities than are envisaged in the Government's proposals, which would undoubtedly have been unpalatable to the banks. There could have been moves towards greater formality in the system and particularly to ensure the detailed involvement of Parliament


—possibly through other departments than the familiar channels of the Bank and the Treasury.
There are other examples of independent comment about the Government proposals which reinforce what is said there. This is not a draconian measure.
We have heard all this nonsense about this being another Socialist proposal. The hon. Member for Horncastle knows very well the genesis of this proposal. The Minister rehearsed it clearly in his speech. Anyone who compares the history of banking in post-war years in this country with that of other countries will find it remarkable that we have maintained such loose control over the banking industry. We have had unclear definitions of banking institutions. It is surprising that we have been able to escape for so long without a major collapse of the sort we had earlier in the decade. This is surprising when we consider the lack of supervision and the freedom with which people have been able to establish banking institutions in this country. Despite the hon. Gentleman's criticisms of the Government proposals, it will be seen that they have not stopped Chase Manhattan, City Corp, the Bank of America and a whole host of substantial banks—indeed, the biggest banks in the world—from expanding rapidly and being successful.

Mr. Emery: Externally, not internally.

Mr. Wrigglesworth: They expanded internally first. It is dangerous to draw too close a comparison. The banking legislation in the United States restricts banks to activities in their own states. Nevertheless, it has not stopped substantial growth by many large banks which have grown and become international over the years. These banks have outclassed our banks in many parts of the world and are bigger than our banks, despite the freedom which there has been here and despite the critcisms of the control which there has been in the United States.
Let me not give the impression that I believe that the Government's proposals, or the type of legislation operating in the States, is the be-all and end-all of everything and will bring to an end all difficulties in banking or will stop banking collapses. If we could guarantee that

there would not be any more banking collapses, there would not be a case for a deposit protection fund. Despite the controls operating in the States, there was the collapse of the Franklin National Bank and there were the problems with the First National Bank of San Diego. There have been problems in Germany with the Herstatt collapse. We know that there have been these difficulties and we know that simply by introducing this legislation we shall not overcome them.
The system which we have had has been dreadfully confusing for the banks and for anyone wishing to establish a bank. There has been confusion of supervision between the Bank of England, the Department of Trade, the Treasury, and so on. To tidy all of this up, to get a proper definition of banking, to put the responsibility on the Bank of England for supervising the banks, is a step in the right direction which should be welcomed. In many respects—the deposit protection fund aside—this Bill is welcomed by many bankers in this country.

Mr. MacGregor: The hon. Member spoke of the collapse of the Herstatt bank in West Germany. What difference does he think something like a deposit protection fund would make in such a situation?

Mr. Wrigglesworth: Over the years the deposit protection fund will be able to provide the resources to deal with a collapse and to protect small depositors. There is a limit to the fund. That is what it is aimed at. The fund is predominantly aimed at those small institutions where collapse is more likely. There is no question about that. There cannot be a deposit protection system without involving all the banks. Anyone who has looked at the deposit protection system in the United States will recognise that that is the case. It has not stopped collapses from happening there, but it has given support to depositors when banks have collapsed. They have the same sort of limit, perhaps slightly higher than here. It is a useful piece of consumer protection which, I believe, should be welcomed here, and which has been effective and helpful in the United States.

Mr. Peter Brooke: Before the hon. Gentleman leaves the international arena and in the light of what my hon. Friend the Member for Horncastle (Mr. Tapsell)


has said, may I ask the hon. Gentleman whether he would say that the Edge Act had been more helpful to American banks in their domestic market or to the City of London?

Mr. Wrigglesworth: I do not want to go down a long line of debates about what might or might not have happened as a result of different pieces of legislation in the United States, or for that matter, in Hong Kong, where they have a much tighter system of banking control than we have—in what is said to be that great bastion of free enterprise in south-eastern Asia.
I accept that this measure is not the answer to all of our problems. All that it does is to lessen the chance that there will be a collapse. It tidies up the whole of our banking legislation and supervision. People will know much more clearly where they stand as a result of this Bill, both overseas and at home. It is an improvement which should be welcomed. I do not suggest that it is a panacea which will deal with all problems, as the Edge Act and other measures in other countries have not been panaceas.
The justification for this measure is, first, that there has been a need to end the confusion and tidy up the banking supervision laws in this country. The second justification is that it will safeguard the public and lead to greater public confidence in the banking institutions.
When one travels round the streets of London one sees the various operations that have been established in the last couple of years which take upon themselves the name "bank". It is worrying that no action has been taken and that no action can be taken under present legislation to control their activities.
We have heard comments about the foreign exchange and almost "bucket-shop" operations that are dotted around London. In various parts of the City there are a number of such organisations, companies or bodies. I do not know who owns them. I do not know what safeguards there are against the public being rooked by such bodies because they are not controlled at all.
This legislation will put fairly on the shoulders of the Bank of England the responsibility for supervising such institutions. A company will not be able to

use the name "bank" or a name which implies that it is a banking organisation unless it can satisfy the Bank of England that it meets the criteria.
There was a collapse in the secondary banking sector earlier in the decade. I was working in the City in the early part of the 1970s. If anybody had told me that companies such as UDT, Mercantile Credit and Brandts—and that is only sample—would be in difficulties, I should have been very surprised.
The collapse which aroused the most attention was that of London and County Securities. The inspectors' report on that collapse led to the first interest being taken in such institutions and eventually to this Bill. I remind the House of what the inspectors' report on London and County Securities said:
Up to the time of the collapse of L &amp; C the Bank of England did not much concern itself with secondary banks. But since the collapse the Bank of England has taken action, in particular by calling for detailed returns.
It is staggering that until only a few years ago the Bank of England was not that. The report continues:
The Department of Trade is responsible for monitoring the accounts of those which are deposit-taking institutions under the Protection of Depositors Act, 1963…It appears that this lesson still needs to be learned and that greater control over the names and descriptions of secondary banks is necessary… Other descriptions, not including the word 'bank', but using such words as 'financial trust' or 'industrial trust', may also be used to inspire undue confidence and should be controlled…Supervision of secondary banks is necessary. The Bank of England would probably be the most suitable body to undertake this task.
That statement came after an exhaustive study.
If one examines all the other things that happened at that time and the establishment of the lifeboat to bail out those institutions at a phenomenal cost to the Bank of England and considerable cost to the clearing banks one can make out a powerful case for the Bill being given a speedy passage.
Can my hon. Friend tell me something about the Stockton-on-Tees Municipal Bank? I come from Stockton-on-Tees and represent a constituency which is just across the river from it. I have not heard of that bank. Perhaps I should sample some of its services. I am sure that the people of Stockton will be


honoured to know that their bank has been mentioned in the debate.
May we have more information about the other banking legislation, some of which is mentioned in the Bill? There is a plethora of Acts which have an influence on the banking scene. It would be helpful if we had some consolidation soon. I wonder whether the Government have that in mind. I am sure that in overcoming the confusion to which I have referred it would be helpful if we had a measure to bring together all those Acts, some of which were passed in the last century, which are still in operation but which are diverse and confusing.
I wish the Bill well. I hope that it is passed speedily. The hon. Member for Horncastle mentioned several matters which need examining in Committee. I hope that the House does not delay the Bill unnecessarily.

5.55 p.m.

Mr. William Clark: The hon. Member for Thornaby (Mr. Wrigglesworth) personifies the Socialist approach to life. Over the centuries Britain's banking system has operated efficiently and properly. Because there is no definition the typical Socialist decides that we must interfere with it, put a definition on paper and regulate it. That is the typical Socialist approach to life.
The hon. Member pleaded with the Government to do something about the present Acts. He would have been better to plead for a simplified income tax system. That is of far more importance than trying to harmonise the banking system.
My hon. Friend the Member for Horn-castle (Mr. Tapsell) made an excellent speech and damned the Bill absolutely. I cannot understand why, with that indictment, we are not to vote against the Bill. The Bill has some good points but many more bad points. Already the Minister has changed the Bill. The Post Office Giro will now give to the Government the contribution that it would have given to the protection fund. That is a nonsense.
The Giro is in the same business as other banking institutions. Why should Barclays Bank or one of the secondary banks have to pay into a fund while the Giro gives its contribution to the Trea-

sury? That is illogical. What will the Treasury do with the money? Will it pass it onto the fund? The Minister must explain.
I cannot understand why the trustee savings bank is not included in the Bill. If we are to set up deposit protection, all bodies in that business should contribute to it. I presume that municipal banks will not contribute. It is a racket that they should not contribute because they guarantee deposits. The ratepayer, not the municipality, guarantees the deposits. Such banks should contribute to the fund. All banks, whether or not they are publicly owned, should be subject to the same regulations.
I agree with my hon. Friend the Member for Horncastle's criticism of the part of the Bill dealing with advertising. The restricted use of the word "bank" will have a detrimental effect on the City and its institutions, particularly as there are so many foreign banks in the country.
The Bank of England will control everything. The right of appeal in the Bill as it stands is only to the Chancellor of the Exchequer. I am delighted that there is now to be a neutral quasi-judicial body. That is a step in the right direction. If there had been merely an appeal to the Chancellor of the Exchequer, who, after all, controls the Bank of England, there would have been no effective appeal.
I turn to the setting up of the deposit protection board. The Minister has told us that three members from the banking fraternity—for example, the clearing banks and the secondary banks, the contributors—will be on the board. In addition, there will be three ex officio members—the Governor, the Deputy Governor and the Cashier of the Bank of England.
The board will look after the deposits that have been paid in by all the various contributors. There will be three members from the banking fraternity proper and three ex officio members from the Bank of England, but it seems that there will be other Bank of England officials. How many? Is the board to be weighted?
The private banks will be subscribing £5 million or £6 million and the management of that sum will be under the direction of the board. Private enterprise will have three members on the board and it seems that there will be


a greater number of Bank of England officials who will be ordinary members. The board will be heavily weighted.
The system of contributions is a thoroughly bad principle to adopt. There will be a £5,000 minimum contribution and a maximum of £300,000. A contribution may be up to 0·3 per cent. of the deposit base. That will bring in £140 million. That will all come from the banks. In fact, that can be doubled to £280 million. That is a great deal of money. It is interfering with banking to make the banks produce that sort of money when we have not as yet had any collapse in which a depositor has lost his money. In the long run it will be detrimental.
The main contribution will come from the nine clearing banks. The secondary banks and the other institutions that are smaller will produce very little of the £5 million or £6 million. What are we doing? We are saying to the most profitable section of banking that it is to produce a certain amount of money to protect the section of banking that might not be profitable. We are telling the profitable section to look after the unprofitable section. That is a thoroughly bad principle.
If people deposit in a secondary bank, they will obviously receive a much higher rate of interest than if they deposit in a clearing bank. I suppose that a person could get 10½ per cent. by putting his money into Barclays Bank or the National Westminster. If he invests in a secondary bank, he will probably receive 13½ per cent. or 14 per cent.
The person who invests in a secondary bank and receives another 3 per cent. is entering into a more speculative venture than the person who puts his money into one of the clearing banks. If secondary banks are to have a fund from which they will be able to draw if they go bust, that will give an air of respectability to many fringe banks that they should not enjoy. It is to be done at the expense of the most stable section of banking. The Government have made a fatal mistake in setting up the deposit scheme.
The banking section fits itself into two parts. First, there is the clearing bank section. Surely nobody will ever think that one of the clearing banks will go down. The second section is the specula-


tive part of banking—namely, secondary banking. Surely we can decide which of the two sections is the most speculative and which is the most stable. If it is necessary to set up a fund, there should be two funds established. Let the clearing banks subscribe to their own stable banking and let the other banks subscribe to their fund. Such a system would be much fairer.
Why should a person who invests in one of the clearing banks be put at risk if one of the secondary banks goes bust? Why should Barclays or National Westminster have to bail out a secondary bank? It is a thoroughly bad principle.
We have over-reacted to the 1972–73 secondary banking crisis. Nobody lost his money. What were the main reasons for that collapse? Probably one of the main reasons was the announcement that there would be a development land tax. Following that announcement, property values immediately decreased. It is all very well the hon. Member for Thornaby laughing, but that was one of the main reasons. It was nothing to do with deposits.
It seems that the EEC directive has been used as an excuse by the Government to introduce a more rigid and wider Bill than necessary. The directive would have been perfectly all right.
If the Bank of England is to look after the secondary banks and insist on the presentation of certain accounts—incidentally, I wish that it had done that with the Crown Agents—and it fails in that job, it should be up to the Bank of England to take the penalty. We should not set up a fund with the support of the other banks in case the Bank of England is incompetent and cannot control some of the fringe banks.
I am glad that my hon. Friend the Member for Horncastle has said that we must examine how we can change the Bill in Committee and that we shall reserve our position for Report and Third Reading. The Bill contains a little that is good and a great deal that is bad. I regret that we have not decided to throw it out and to start all over again.

6.8 p.m.

Mr. Peter Emery: If the Bank of England needed to have proof that it has a clean bill of health, today's debate is that absolute proof. We have


heard criticisms from the Socialist Benches of the Bank of England on so many occasions, yet today the Socialist Benches are absolutely empty. Not one word has been raised against the Bank of England, and rightly the Bill is brought forward to enhance the authority and power of the Bank of England. Strangely enough, that is being done by a Socialist Government.
I congratulate the Treasury Bench on having the strength and the wisdom to realise that when powers of control of the banking system have to be introduced into our legislation as a requirement of our entry into the EEC, they should be placed at the centre of the banking system—namely, with the Old Lady of Threadneedle Street.

Mr. Denzil Davies: The hon. Member for Honiton (Mr. Emery) will recollect that the hon. Member for Horncastle (Mr. Tapsell) described the Bill as "creeping Socialism". I do not know how the hon. Member for Honiton can reconcile that statement with his remarks about the Government using the traditional methods of the Bank of England to carry out these provisions.

Mr. Emery: I am doing nothing other than praising the speech of my hon. Friend the Member for Horncastle (Mr. Tapsell). It was elegant and accurate. Where Socialism creeps into the Bill, my hon. Friend had no worry in underlining that fact.
The Opposition are not opposing the Second Reading because anyone who knows anything about banking agrees that the aspects of control in the banking system ought to be centralised. These banks were under the Department of Trade, and as a Minister there I had problems both from the consumer aspects and in the application of section 123 banks. The Treasury had problems. Indeed, the tacit control within the banking system and the reporting required by the Bank of England of all banking institutions are frequently unknown outside a small circle of people. I give credit and praise to the Bank for the way in which it carried out this very difficult task between 1973 and 1976. The Bank did it with great tact and in a manner which few other bodies could have matched, particularly any ministerial body which

would have involved a degree of bureaucracy, which has been non-existent in the Bank's approach.
My main reason for speaking is to underline that our Socialist Government have rightly decided to ensure that where control in the banking sector has to be strengthened, it should be done by the Bank of England.
My hon. Friend the Member for Horn-castle referred to foreign banks. I believe that the British banking institutions, particularly the smaller ones, will object strongly if the rules by which they have to abide are entirely different from those for foreign banking institutions. Foreign banks can set up a branch in the City of London and compete for deposits without any of the controls and regulations established by the Bill. It would be nonsense to think that the Bill is setting up new regulations; it really only codifies them. Although I have not discussed the matter with my hon. Friend the Member for Horncastle, I believe that all banking institutions, whether foreign or not, should have to meet the same criteria, if they are taking deposits. If they are not deposit-taking, it is an entirely different matter.
Why have the American banks been particularly successful in this country? Much of the banking business of American companies will flow partly, though not entirely—the big American corporations have two or three bankers—through American bank branches in this country. How has the Bank of Cyprus done so well? It has attracted deposits from Cypriots living in this country. I mention that bank because it had a difficult period which its management has rectified and it is now stabilised. It would be quite wrong that that bank should meet our criteria and regulations and that another foreign bank should be allowed to compete for depositors, having met none of the regulations or management requirements which are so necessary in running an acceptable financial institution.
Therefore, I ask the Minister whether it has been considered that all foreign banks willing to take deposits in this country should be required to meet the regulations. The Minister may tell me that that has been considered. If that is so, perhaps he will tell me why it was


decided that they need not comply with the same regulations as a British bank.
Regarding competition and the "climbing up the ladder" syndrome to which my hon. Friend the Member for Horncastle devoted part of his speech, he was absolutely right when he underlined how all big institutions were once small. In the City of London there are major institutional bodies which have grown up within two generations, and sometimes even sooner. In those circumstances, we must ensure a progression which will not be too difficult.
I am particularly concerned that the phrase:
a wide range of banking services
which appears several times in the Bill has five criteria in schedule 2. I do not intend to go into those criteria, but one is that current and deposit account facilities shall be made available. I describe them as retail banking facilities. The schedule goes to say that the Bank of England, in considering the wide range of banking services, can exclude three of those five criteria. However, it is not allowed to exclude the retail banking services.
Many merchant banks, which rightly describe themselves as banks because they carry out many banking operations with industry and commerce and provide money for joint ventures and the whole area of corporate finance, do not need or want to carry out a retail banking operation. Some do, but purely for prestige purposes. Some are moving away from this operation, because unless they have an increasing number of accounts it becomes a very expensive shop window.
In certain instances I would hone that the exception of the retail banking factor would still allow a body climbing up to consider providing a wide range of banking services. The type of banking services that such a merchant bank would provide would be directed not towards the retail banking side but more to the corporate or industrial finance side. I hope that that matter can be fully considered in Committee.
Similarly, I am not quite certain how the application of the foreign currency till will be started. At present, that is controlled through the Bank of England. I presume that the licensed institution wishing to climb up the ladder will, in

time, be allowed to have a foreign currency till. If it cannot get a foreign currency till until it becomes a recognised bank, I am not certain how it can become a recognised bank. This is another problem which we must have defined.
I agree with the hon. Member for Thornaby (Mr. Wrigglesworth) that the number of shop windows" appearing round London providing a necessary service—foreign currency exchange—are there only to make money. They are not there for the benefit of anyone but the proprietor. It is nonsense that these foreign currency shop windows should be allowed to call themselves banks. I think that the registrar of companies could control that practice under existing regulations. Can the Minister undertake to look at the matter while the Bill is going through, because that practice ought to be stopped?
I also urge that in dealing with variations between the recognised bank and the licensed institution, one of the requirements for licensed institutions should be carried through into recognised banks. What matters most for any good organisation is the management of the business. Schedule 2 to the Bill states:
Every person who is a director, controller or manager of the institution is a fit and proper person to hold that position.
It is terribly important that we do not have people running deposit-taking institutions who are not of the highest calibre. Where problems have arisen in the past, it has normally been because bodies have not had a high standard of management capability and have got themselves into trouble. We should not presume that just because an organisation has moved from the second division into the first division it will automatically keep the same requirements on management. That provision should be stipulated in the Bill and not just presumed as it seems to be at present.
I do not take quite as strong a view as do my hon. Friends about the depositors' protection scheme. I believe that it has been included because it plays up to the modern trend of consumer protection. It panders to that. Is it so terrible to suggest that that pandering should be taken out of the Bill?
I understand the criticism of Giro. The Minister has partially answered it and I know the further answer that Giro is not


being included in the protection scheme because the guarantor of Giro is the taxpayer, so Giro would never have to draw on the scheme. However, I immediately have to ask whether the Government expect that the joint stock banks or the clearing banks will ever have to draw on the scheme. Of course they do not.
The Government are saying, in effect, that the strong will provide an insurance for the most questionable. In basic economics, that is nonsense. It will encourage the less responsible to put up their rates to attract deposits and perhaps be even less responsible.
Anyone who knows the City is aware that no depositor in any banking institution has ever lost a penny: shareholders yes, but not depositors. That is why the Bank of England had the lifeboat, but we do not need a depositors' protection scheme for people to know that no depositor in a British bank has ever lost any money.
The Treasury has been sensible in its approach to the Bill, especially in giving responsibility to the Bank of England. That is a great credit to the Bank and is exactly what I would have expected. Because of that, it is right to welcome the Bill. There will be major points to be dealt with in Committee, but I hope that that work will make the Bill better and that we shall be able to combine in seeing it onto the statute book.

6.25 p.m.

Mr. John MacGregor: I declare my interest as a director of one of the accepting houses, but I am speaking entirely in a personal capacity. I have another reason for intervening. Because, alas, I shall be serving on the Committee of another Bill going through at the same time, I shall be unable to take part in the Committee stage of this Bill.
There are a number of observations that I wish to nut on the record and draw to the attention of the Minister. Some have been made by other hon. Members, but the more they are reinforced, the more seriously the Minister will take them. I have to raise these matters now, even though one or two are really Committee points, because I shall not be able to serve on the Committee.
I accept what the hon. Member for Thornaby (Mr. Wrigglesworth) said about the need to tighten the licensing and supervision of the banking system. I was not in the House, but I was in the City, during what has become known as the secondary banking crisis. My bank was not involved, but I naturally observed at close hand what was going on.
I accept that the Bill is necessary for a number of reasons, including the effects on the financial system of what happened at that time. All hon. Members know that many depositors do not have the same sophistication as those who are familiar with the financial scene and that many of them put lifetime savings into insurance funds or banks and expect protection. If they do not get it, they come to hon. Members—we all remember what happened with Nation Life—and complain. I accept that the Government's proposals are necessary because there were obvious weaknesses at that time.
However, I noticed that when my hon. Friend the Member for Croydon, South (Mr. Clark) was discussing some of the reasons for the secondary banking collapse and referred to the introduction of the precursor of the development land tax, the hon. Member for Thornaby shook his head and smiled. I have to tell him that, although there were a number of reasons, the introduction of that tax was one. It undoubtedly had a major effect on the property market and, although it could be argued that too many banks were too heavily involved in the property market, for reasons that we can go into at some other time, the proposed tax had a serious ripple effect. The hon. Gentleman must not discount its impact on the collapse.

Mr. Wrigglesworth: If the hon. Gentleman would be prepared to extend his listing of causes to the general area of Government policy at that time, I would heartily agree with him. The announcement of the tax was important, but there were many other reasons besides that.

Mr. MacGregor: That is a subject which we shall have to debate at another time. The cause of the collapse certainly extended into other areas, but the announcement of the tax had a crucial effect on confidence and set up a ripple effect. I agree with what my hon. Friend the Member for Croydon, South said and


it seems that the hon. Member for Thornaby is coming a little closer to our view. I hope that he will learn the lessons of the effects on the wider scene of the introduction of such a tax.

Mr. Denzil Davies: The hon. Member for Croydon, South (Mr. Clark) said that the development land tax had caused the problems. In fact, he meant the development gains tax, which was announced by a Tory Chancellor. We are talking about a Tory announcement of a Tory tax.

Mr. MacGregor: We are indeed. I said that it was not the development land tax, but its precursor, which was the development gains tax. We are talking about the same tax and we seem to be getting nearer to agreement.
There are much wider issues at stake in the question of what happens in the banking system than just the supervision. I agree that at the time of the secondary banks crisis there were weaknesses in the supervision. I thought that the most glaring was that the section 123 banks reported to the Department of Trade. Clearly it was right for them to be brought within the scope of Bank of England supervision.
It could also be argued that the Bank of England supervision at that time was somewhat lax, and perhaps not quite as formal and as closely controlled as it will be now. Nevertheless, having made that point, I would not wish in any sense to vote against the Bill on Second Reading.
I think that the Bill has gone for overkill, and I want to concentrate on one particular aspect—part II, which deals with the deposit protection scheme. I do not believe that the case has yet been made for the introduction of the scheme. Unless in Committee—as I said, I regret not being on the Committee—a much clearer case can be made for it than has been made by the Minister today, I would be disposed to argue that this part of the Bill should be voted against on Report.
I wish to put forward three main reasons, some of which have been touched upon already in different ways by my hon. Friends. The first concerns the whole principle of the scheme, which is really asking the entirely prudent banks and those who deposit with them to bail out those who are not prudent—and, inci-

dentally, their depositors who were taking risks, and who should have known that they were taking risks, by seeking higher interest rates. Is this the right way to go about consumer protection?
My hon. Friend the Member for Honiton (Mr. Emery) referred to the need to pander to consumer protection. He said that there may be something to be said for it. But we ought to be realistic about what kind of consumer protection we are seeking. There are two sorts of consumers involved. One is the depositor with the prudent bank and the other is the depositor with the imprudent bank. We appear to be saying that consumer protection should be for the imprudent and not for the prudent. I question whether that principle is right. The point made by my hon. Friend the Member for Croydon, South about the two types of deposit protection schemes seem to be worth looking at in Committee.
I cannot resist making a further point on this principle, having referred to prudent banks. I wish that in the debate we had focused rather more—or that the Minister had done so—on the tremendous record of the prudent banks, because in seeking to introduce these new provisions we are talking of a very narrow area of banks. What strikes me so often, when I pay this tribute to the prudence of our banking system, is the completely split mind of so many Labour Members, and particularly those in the Tribune group. I am struck by the paradox in the way in which they approach the question. If they were here today, they would be strongly supporting the Bill and making all sorts of speeches about the imprudent lending of many banks, yet they are the first to urge upon many of our private institutions, whether banks or insurance companies, that they should lend in areas which the banks and insurance companies would themselves regard as imprudent, simply because it suits the predilections of the Tribune group.
On the one hand, we so often hear the Tribune group criticising the fuddy-duddiness of our clearing bank system and the fact that the banks will not lend to the kind of proposition that the Tribune group would favour. On the other hand, we hear the Tribune group criticising other banks when there is any possibility of depositors losing their money. These


Labour Members are ready to criticise, at the drop of a hat, any imprudent lending by the private sector, but they do not give a fig when they urge Governments to use taxpayers' money in the same direction. We have seen a good deal of spending by Government in assistance to industry which has gone completely wrong and the taxpayer has lost his money. In one and the same argument we are talking about the same type of people, except that in one case they are depositors and in the other they are taxpayers.
When we hear Labour Members talking about the City—whatever that might mean—or banks not lending in the national interest, when those Members mean their own personal predilection, they might bear in mind that it is the prudent lending in which the banks have been engaged which has so often protected the depositor. That being said, I still think that the principle of the deposit protection scheme is wrong.
My second reason is that if the supervision system is now correct, the deposit protection scheme is unnecessary. That is the belt-and-braces point made by my hon. Friend the Member for Horncastle (Mr. Tapsell). If the new system is sound, as we hope it will be, and bearing in mind that all the banks which will be licensed and supervised will have prudent bankers operating in them, is there any need to set up this kind of spurious scheme in order to give some spurious feeling of consumer protection? If there is a need, it is quite simply a reflection on the way in which the Bank of England has exercised its powers in this case. If there is a really serious situation in any one bank, I question whether we need the scheme in any case.
The hon. Member for Thornaby referred to the funds that went out during the lifeboat operation. I think that there is a quite large distinction between a deposit protection scheme and a lifeboat operation. This point was made very effectively in The Banker in October 1978, from which I quote this brief paragraph in order to get it on the record. It says:
The irony…is that, had the Deposit Insurance Scheme proposed in Part II of the Bill been set up in 1973, it is not at all certain that many calls would have been made upon it. All

the arguments for creating the ' lifeboat' in order to halt the weakening of depositors' confidence would have remained just as valid as they were without the Deposit Insurance Scheme, since the purpose of the 'lifeboat' was to prevent institutions experiencing withdrawals of deposits from going under. But if institutions were not forced into liquidation, then the Deposit Protection Scheme would never have been triggered; and even if it had been triggered only a relatively small proportion of the total amounts deposited with the failed institutions would, in fact, have been covered.
Various consequences flow from that. If there is a major difficulty, such as the secondary banking collapse which occurred in the 1973 period, we shall have to look to something further than the deposit protection scheme—or the banks will wish to do so—in order to prevent a collapse of confidence in the system. If, on the other hand, there is a collapse of only one small bank, where the deposit insurance scheme would be relevant, it is very likely indeed that all that would be happening would be that the clearing banks and their prudent managers and prudent depositors would be bailing out those who were imprudent. I come back, therefore, to my first objection in principle—

Mr. Emery: I am grateful to my hon. Friend for giving way. Would he not agree that, if there is a depositor protection scheme, the likelihood of being able to bring in another lifeboat would be made more difficult? There would already be a protection scheme, and that would be the confidence factor. It is not a matter of the small depositor; it is the withdrawal of the large deposits which cause banks to collapse. That is where confidence is lost, not in the work that the protection scheme will do for the small depositor.

Mr. MacGregor: My hon. Friend could well be right. In certain circumstances that could certainly flow. I take his point. We have to make the distinction between a major situation and a very minor one. If it is a minor one, we come back once again to the question whether the principle of the scheme is right.
My third criticism relates to the unfair method of setting up the fund. My hon. Friends have already referred to this and therefore I need touch on it only briefly, but I have some points to add to what they said. The point has already been made about the lending banks having to provide the bulk of the funds, and I do


not need to repeat it, but there are other banks concerned—for example the accepting houses.
I have a point to put to the Minister on this. One of the arguments of certain of the accepting houses against this method is that their sterling deposit base is used as the base from which their contribution to the fund comes, but, of that sterling deposit base, only a tiny proportion, in the case of a number of accepting houses, will be small deposits. Effectively at any point, even if anything happened to one of them, they would get very little out, but they are making a big contribution.
There is a point here on which there seems to be some uncertainty. Perhaps the Minister will deal with it in his reply. In a situation such as that of the accepting houses, to what deposit base does the fund apply? I know that, in the Bill as a whole, inter-bank and other deposits of that sort as defined in clause 1 are excluded, but in clause 23(6) it is not absolutely clear whether inter-bank deposits are excluded as well as the three listed or whether inter-bank deposits come in. I suspect that inter-bank deposits are excluded. Therefore, the British Bankers Association is correct in its representations. But I have had representations from other people within the Accepting Houses Committee which leads me to suspect that all deposits are brought within that definition. I should be grateful for clarification on that point.
I come back to the unfair method. I feel strongly that the way in which the Minister is proposing to bring in the National Giro—it is a big improvement—and the delay in bringing in the trustee savings banks is unfair to the private sector. I think that we see this happen all too often and that we let it slip by all too easily.
I am still greatly disturbed about the extent to which Government national savings in all forms can obtain favourable tax treatment. It is easy for a Government, whenever they wish, to twist the way in which tax-free interest on deposits is allowed. It is easy for them to introduce an unfair bias against the private sector. Therefore, if we are looking for fair competition in banking, we should be on our guard against anything which smacks of unfair competition.
The Minister has gone some way towards meeting the point about the National Giro. I should like to feel that he would also bring in the trustee savings banks much earlier than he said.
I should like to make two points on the National Giro. First, I take it that the contributions under the special contributions clause will apply equally to the National Giro if special contributions are called for from the banks. Secondly, will the Minister reconsider where the funds from the National Giro go? I agree with my hon. Friend the Member for Honiton about this matter. It is easy to say that the National Giro will never fail. That, in a sense, is unfair competition, because if it makes substantial losses we know that the Treasury will bail it out. But it should at least be put on the same basis as everyone else by contributing to the fund. Such a contribution would increase the fund. That would not only be helpful to the banks but would put them on a fair basis.
I should like to make a point about the building societies. I recognise that they are regulated under a different system. However, we should bear in mind that increasingly large numbers of people—I think now the majority of depositors—use building societies as banks. We need only look at the growth in the current balances and deposit balances of all the banks and compare them with the growth in the building societies' funds since 1968 to see how enormously the buildings societies' funds have grown. The banks' funds have not grown proportionately. There is only one reason: that with easy withdrawals higher rates of interest and tax advantages, people regard them as banks.
It may be argued that the building societies have their own system of regulation, but they are not being asked to set up a fund such as the one proposed in the Bill. When trouble arose with the Grays Building Society, the Building Societies Association moved in, just as the banks would if there were a collapse of a small bank, to protect the depositors. One can say that it is satisfactory. But suppose—let us hope that it never happens—a larger building society ran into difficulties. Would the building societies be able to give the same help?
Leaving aside the point that there is doubt whether the system for the building


societies is fully satisfactory, we are here saying that there should be one system for the banks with a deposit protection scheme and that the building societies, which affect the banks in many ways, should go without one. Is that right? My conclusion is that we should drop the deposit protection scheme for the banks rather than set up some cumbersome method for the building societies. The point is that again we are not introducing like with like.
Is not the fund an unnecessary extension of bureaucracy and Government intervention? If we brought in the section 123 banks under the Bank of England and strengthened its supervision, would that not be sufficient? I do not think that the Minister has yet given proper justification for the introduction of the fund.
I want to make three other points. The first is probably a Committee point, but I want to make it now as I shall not be serving on the Committee. It relates to relief from taxation for the contributions which the banks will have to make to the fund. The British Bankers Association has already made representations to the Minister on this matter. I agree with those representations. I understand that under current case law this should not happen. Where, however, the Government are to force the banks to make contributions out of which they can make no profit and which, if only to a small extent, reduce the capital base on which their business depends, I think that they should be allowed relief from tax for those contributions. I hope that this point will be taken up in Committee.
The next point relates to the special provisions. It is beginning to be seen from the debate today that what the Government are asking for with all the special provisions—particularly if they can be doubled to the extent of a £280 million fund—is a very large fund. If it is necessary to have such a fund, will this system work? Shall we not have to resort to the kind of things that we saw with the lifeboat? Is it necessary to have hanging over the banks this threat of special provisions being called upon at any point because something happens to another bank?
I am suspicious of clause 33 on advertising. I confess that at various times in my banking career I have been responsible for the drawing up of advertisements for deposits. I have always been extremely prudent in the way I have done it. If we are to have this new banking supervision system, is it necessary to introduce a new burden of controls? When the legislation goes through, clause 33 will give certain people powers to make new regulations regarding advertising, and again we shall have every "t" crossed and every "i" dotted. Is that really necessary? If the Minister insists on it, I hope he will give an assurance that the clause will be flexibly applied.
The deposit protection scheme is the most important aspect of the Bill which worries me. I recognise that the British Bankers Association has gone along with the scheme. In a sense it had to do so, because it was seeking agreement with the Government. But we are in a different position. I believe that before the Government are allowed to introduce the deposit protection scheme they should be asked to justify their position. They have not yet done so.

6.48 p.m.

Mr. Ian Stewart: Like my hon. Friend the Member for Norfolk, South (Mr. MacGregor), I begin by declaring an interest. I am a director of Brown, Shipley & Company Limited and a member of the Accepting Houses Committee, which I joined in 1960.
This has been a short but useful debate and I should like to make a few comments on some of the points which have been made. I think it will be apparent to anyone who has been in the Chamber this evening that, even though Second Reading of the Bill may not have attracted a great deal of attention on the Floor of the House, the Bill has attracted a lot of interest outside. That is due not only to the subject matter but to the effective way in which the preliminary stages were gone through.
I commend the Minister of State for the substantial time that was allowed between publication, first, of a White Paper and then of a draft Bill, because it enabled representations on many points of detail to be made about the content of the Bill. Indeed—due, I am sure, to the


Minister's own interest—many improvements and adjustments were made in the light of those representations.
Another way in which the significance of the Bill is wider than our consideration of it tonight lies in the fact that what is implicit in the Bill is in many ways as important, if not more so, as the content of the Bill. Although the Bill lays down some fairly clear-cut rules and a framework within which the British banking system will be called upon to operate in the years ahead, it is not at this stage easy to tell in every way how it will be interpreted in practice.
It would be fair to say that the success of the Bill and the system that it establishes will owe a great deal to the way the parties to it carry out their various responsibilities, duties and functions, not the least of them the Bank of England. It will also involve the attitude of the Treasury and the co-operation of the banks and the licensed deposit-takers to make the system work. I profoundly hope that it will work. If we are making a major change in the arrangements for banking—it is the first time a structured arrangement has been introduced in this country for the whole business of banking—it will naturally have a profound effect if it does not work as well as we may be entitled to hope.
Many Committee points have been raised during the debate. As my hon. Friend the Member for Norfolk, South said, some of these will have to be pursued in Committee, but there are a number of points of principle, many of which have come up more than once in the debate.
I must agree with my hon. Friend the Member for Horncastle (Mr. Tapsell), who in an excellent introductory speech said that the Bill was not as innocuous or uncomplicated as it might appear at first sight. That point was taken up by my hon. Friends the Members for Croydon, South (Mr. Clark) and for Honiton (Mr. Emery). I entirely agree with them. I do not want to repeat all that they said, and I shall endeavour not to do so, but some of the ground they have touched upon contains the essence of some of the difficulties that may lie ahead. We should take this opportunity to be sure where we stand on some of those points.
I believe that the Minister has played an important personal part in ensuring that many of the technicalities were smoothed out before the Bill reached its published form and before this debate. We accept the general principle of licensing. We believe that it is necessary. My personal view, like that of the hon. Member for Thornaby (Mr. Wriggles-worth), is that, even if there were not a directive from the EEC requiring us to introduce a system of prior licensing, we should probably have to consider something of the kind in order to regulate the business of banking.
In recent years banking has grown so much in scale, the sums of money involved are now so huge and the movement of funds between countries and the effect of the banking system within any economy are now so important and fundamental that it would not be possible to carry on indefinitely with an informal and, indeed, imperfect system. I was very pleased to hear my hon. Friend the Member for Honiton pay tribute to the Bank of England and point out that the absence of criticism from Labour Members—their absence contributed to the silence—allows us to consider the role of the Bank of England in a more rational and perhaps more dispassionate way than we might otherwise have found ourselves doing.
I associate myself with what my hon. Friend said. I believe that the Bank of England is uniquely equipped to perform the functions that the Bill calls upon it to carry out. Although, on the basis of hindsight, it is fair to say that there were glaring deficiencies in the way banking regulation was carried out until the beginning of the 1970s, the early experience which the Bank of England obtained and the way it responded to the situation showed it in the most favourable light. The reputation of Mr. George Blunden and his colleagues and successors in the banking communities in Europe shows that the work that he did has had a beneficial effect on the whole subject of banking regulation far beyond the British Isles. The role of the Bank of England is therefore essential to the requirements of the Bill.
I am one of the few hon. Members—perhaps the only one—who has taken part directly in some of the prudential


discussions between a bank and the regulatory authority. I know that the mutual exchange of ideas in these discussions has been helpful to me. I believe that the Bank of England has also learnt a great deal more about the thinking behind the banking community and the money markets in London by its regular discussions with most, or all, of the principal operators involved. To build on that is a sensible, reasonable, desirable and necessary development.
There were weaknesses in the previous system. My hon. Friend the Member for Norfolk, South described them. Like the hon. Member for Thornaby, I would welcome some consolidation not only of the responsibilities, which is taking place within the Bill, but also of some of the other legislation which affects banking and related activities. There is the Exchange Control Act 1947, under which banks can be authorised for exchange control purposes. There is the Companies Act 1948, under which, in schedule 8, provisions are made for some banks to keep some of their reserves undisclosed. There is the Companies Act 1967, which, with hindsight, can be shown to have caused some of the main problems. In section 127 exemption was given from the Protection of Depositors Act in relation to advertising and the submission of accounts.
The more dangerous section 123, which granted exemption from the Moneylenders Act 1900, perhaps led more than anything to misunderstanding in the public mind about the degree of qualification of banks which describe themselves as "123" banks by virtue of that section. Of course, there is section 54 of the Income and Corporation Taxes Act 1970 which allows certain institutions to pay and receive interest gross instead of net of tax.
These various and overlapping recognitions of one kind or another undoubtedly led to the muddle in thinking among the public and within the money markets and the banking community itself. The idea that we should have a banking Bill which dispels those weaknesses in the system and produces a more formal and visible framework is, in principle, to be welcomed.
It is, therefore, extremely important, in view of the way that the Bank of

England has fulfilled its role and has been developing it in recent years, that the Bank should be as free as possible from interference and intervention from Whitehall. I wish that I could have as much confidence as my hon. Friend the Member for St. Ives (Mr. Nott), who on Monday, on Second Reading of the Companies Bill, said that he hoped company law would be able to remain a relatively un-political area of our debates. I wish that that was also true of banking. Unfortunately, any discussion of this subject lies under the long shadow of the Labour Party's ambition to control the financial system for political purposes.
I shall not rehearse the threats of nationalisation which have been made on many occasions, but I shall quote one remark that is shattering to those who
look to the future position of the Bank of England. The report of the national executive committee of the Labour Party to the 1978 party conference said of the Bank of England:
Its enormous resources must be brought to bear in support of the Government's industrial strategy.
I suppose that that is another way of saying that if the Department of Industry and the NEB are not going to bail out the Kirkby co-operative, perhaps the Bank of England could be brought in to do it instead.
It is not surprising if, in the light of statements like that, doubts occur in the minds of many as to whether the Bill is not a small first step in the campaign of the Labour Party to tighten the Government's grip on the Bank of England. I sincerely hope that it is not. If it is, it will frustrate the whole tone of this legislation. Unfortunately, the attitude which has been displayed over the position of the Giro is a symptom of the same disease. Why should it not be supervised, and why should it not contribute to the fund? Although the Minister has taken the point that there should be no unfair competition and that it should therefore make a contribution to the Treasury, I hope he will also accept that if institutions like the Giro stay out of the fund, those who are members of it will have to make a greater contribution.
If the Giro, whatever its future form, is to be expanded, and if a greater part of the public's free deposits are to be placed


with it, this imbalance will be exaggerated. That cannot be justified on the basis of risk. Deposits with the Giro must be risk-free, as, too, must be deposits with the clearing banks. But they have to bear the lion's share of the contributions to the fund.
I accept that there are different interests among the contributing institutions which are potential contributors to the fund. The clearing banks could reasonably say that because of the safety of their institutions their contribution is too great. That has to some extent been recognised by the placing of an upper limit. Other banks—perhaps the merchant banks and others—could say that many of their deposits are taken in wholesale sizes for insurance companies, corporations and so on and that, therefore, the number of small depositors on their books is small.
A balance must be struck somewhere. I do not disagree too strongly with the pragmatic balance which has been struck in this respect. Much more significant is the question of whether there should be one fund to cover the two different categories of bank, and that is a point to which we should return.
A major theme of the debate has been the size of the fund and, beyond that, the size of the guarantees which lie behind it. At £5 million to £6 million, the fund is not very large in relation to the banking community as a whole where deposits run into billions of pounds. But the guarantee figure—it may be £130 million at the 0·3 per cent. level—is 25 times as large as that. It will be double that proportion if the figure is 0·6 per cent.
In drawing up the Bill, the Government and their advisers may have been confused in their purpose between insurance and rescue. The total of the lifeboat, which amounted to just over £1 billion, was largely devoted to recycling funds and not to bailing out depositors. I view with alarm the sort of failures that might involve anything remotely like 0·3 per cent., let alone 0·6 per cent. of the defined deposit base of the banking system.
In this day and age we may well have to live with some form of protection or insurance. Depositors will not recover all their money. They will lose a quarter of it even if they are covered by the

fund. It might have been better if the figure had been slightly higher than 25 per cent. If, however, we accept, in the spirit of consumerism of the age, that some form of deposit protection is acceptable, why do we have to have a tangible fund as well as this colossal guarantee? The only answer I can imagine is that if the fund is visible the public will be more comforted and more certain that they may be recompensed in case of failure.
The Minister, however, must consider what sort of people the public are. If these people are told that one of the High Street banks will pay them back in case of loss of money, do they mind or are they concerned to know whether there is a small pool of funds out of which the money would be drawn or whether the banks would pay up the moment they were asked to do so in the way that they each month make transfers to and from accounts at the Bank of England at a moment's notice?
If the system of supervision and licensing is successful, it ought greatly to reduce the need for any rescue of this kind. We shall be faced with three stages. My hon. Friend the Member for Horncastle mentioned the belt-and-braces approach. There is, first, the supervision and licensing system. I think and hope that it will work pretty well. In principle, it will largely succeed in most circumstances in avoiding the sort of problems that have arisen in the banking system in recent years.
But, in addition to that, there is a small fund and a colossal guarantee. This three-pronged attack does not seem necessary. It is not only a question of belt and braces. It is rather like wearing a spare pair of trousers underneath instead. Even if we are moving into less permissive times, that seems to me too prudish an attitude to the indecencies of financial exposure. I think, therefore, that the case for the fund has now been made. It is bureaucratic and unnecessary and, in the words of my hon. Friend the Member for Norfolk, South, it amounts to overkill.
The other main theme of the debate has been about the structure and division into two watertight categories—the recognised banks and the licensees. The Minister of State pointed to some of the facts which render the dividing line less


rigid. He said that there would be adjustments on the fixed minimum capital requirements so that they did not apply to existing institutions. He mentioned, too, that there could be transitional provisions for two years for licensed institutions which were on the borderline and which might soon hope to qualify as banks. But that does not dispose of the problem.
My hon. Friend the Member for Horncastle pointed out that within the 200 or 250 licensed deposit-takers that will emerge under this legislation a number—perhaps a few dozen or 50—are currently genuine banks. Will the Minister of State reconsider the position of companies such as that?
One might ask "When is a bank not a bank?" The answer is "When the Bank of England says that it is not." A great deal will depend upon the definition of "reputation" and standing". I have the greatest confidence in the Bank of England's judgment in this matter, and I do not question it, but the requirements of reputation and standing in the Bill to enable a small or recently formed bank to qualify as a recognised bank are such that many companies will be conducting what in ordinary English is a bank business which they cannot describe as such.
Let us imagine what happens when the managing director of Little Bank Limited goes to his solicitor after the Bill is enacted, if it is. His solicitor tells him that he has only a few months left before his bank must change its name. He will be told that in future it cannot be known as Little Bank Limited but that in future it must be called Little Licensed Deposit-Taking Institution Limited.
The solicitor will then say that simply to cheer up the managing director he has another client in the next room who is an overseas trader who is looking for some financial services. The solicitor will offer to introduce them so that they may do some business together. They meet, and the managing director of the Little Licensed Deposit-Taking Institution Limited tells the overseas trader that he would very much like to do business with him. He will then say "Let me first describe what they do."
Being a well-informed banker he will know the requirements of schedule 2 on page 53 of the Bill off by heart. He will quickly run through the activities carried out by his company. He will say "We conduct current and deposit account facilities, we make overdrafts and have loan facilities. We can provide foreign exchange services for domestic and foreign customers. We open letters of credit, we discount bills of exchange and provide financial advice and investment management services, we deal in securities and so on." "Ah," will say the potential customer, "so you are bankers—just the people we need." The unfortunate managing director of the Little Licensed Deposit-Taking Institution Limited says "What on earth gave you that impression? It would be against the law for me to agree to that."
Clause 35(1) reads:
no person carrying on a business of any description in the United Kingdom"—
other than the Bank of England and other categories, including "a recognized bank"—
may use any name or in any other way so describe himself or hold himself out as to indicate, or reasonably be understood to indicate, that he is a bank or banker or is carrying on a banking business.
It may be possible in Committee to adjust that provision and to add the words "for the purpose of obtaining deposits", because these regulations are to protect depositors. Surely they are not intended to stop people who engage in banking saying that they are bankers and describing accurately what they are doing?

Mr. Denzil Davies: As I understood the hon. Gentleman, he went through schedule 2 and in his example Little Bank Limited was carrying out all the services listed in paragraph 2. I do not know whether that bank enjoys a high reputation and standing in the financial community, but I assume that it did. Therefore, it could probably satisfy the Bank of England that it was a recognised bank. In that case, the prohibition in clause 35 does not apply.

Mr. Stewart: The Minister has made an important comment. He said that if the bank was carrying out all these functions and was of high reputation and standing, it would be a recognised bank in the terms of the Bill. I am anxious


about the fact that there are a number of companies—I shall not, for obvious reasons, name names tonight—which are greatly concerned that they have been advised informally in discussions with the Bank of England that they will not qualify as recognised banks, either because they are still small or because they are recently founded and have not yet acquired sufficient reputation and standing for the high accolade of being accorded the appellation of "recognised bank".

Mr. Denzil Davies: I said that that may be the case, but that was not the example given by the hon. Gentleman. He made great play of the fact that Little Bank Limited would be put out of business. Despite that, it seemed to fall within most of his criteria. Size in itself has nothing to do with these considerations. If Little Bank Limited met the criteria in the Bill, if it had a high reputation and standing in the financial community, it could qualify as a recognised bank.

Mr. Stewart: Again the Minister is answering in theory, but in practice there are a number of cases in which the smaller bank, because it has not satisfied the Bank of England that it qualifies as a recognised bank, would be prevented by law from accurately describing its business.
I do not believe that the Government can alter the established meaning of a common word by Act of Parliament, much less make it a criminal offence to use it in the sense which it has enjoyed for centuries. Even if it could alter that practice, I do not think that it should do so for some banks rather than for others. It applies only in some cases, because clause 35(3) mentions
an enactment or any instrument
Such a company if described as "a bank" may be included. That provision is bordering on never-never-land.
I believe that there is a fundamental defect in the drafting of the Bill. I hope that we shall be able to resolve it. I hope that before the Committee proceedings the Minister will be able to address himself carefully not only to what I have said tonight but to various representations which have been made to him by some of the institutions which may be affected.

Mr. Wrigglesworth: The hon. Gentleman seems to be putting in doubt the judgment of the Bank of England, an institution which only a few moments ago he was praising. Is he encouraging Labour Members to suggest that there should be more detailed criteria in the legislation than already exists, or does he want the discretion of the Bank of England to be left as it is?

Mr. Stewart: The discretion of the Bank of England is very reliable, but under this legislation it will be necessary for the Bank to give almost statutory meaning to words such as "reputation" and "standing". For the purpose of making any licensed deposit-taker into a recognised bank, it will have to think carefully about the standards in a technical sense that it operates. I believe that there are some small and perhaps recently formed institutions which are banks and which call themselves banks but which, for one reason or another, will not within the two-year transitional period be able to convince the Bank of England that they will become recognised banks.
The provisions of clause 35(1) on such companies could be onerous and, indeed, unrealistic. There are a number of other technical questions, but they do not go so much to the heart of the provisions of the Bill. We shall require to make a number of these points in Committee.
I should like to make one or two of these points by way of example. Are stockbrokers to be excluded as paragraph 13 of the White Paper suggested? If so, what is the definition of "day-to-day deposits"? What kind of transactions will be exempted by statutory instruments under clause 2? When shall we see the draft of the Treasury regulations on advertisements mentioned in clause 33? Will the initial contributions to the deposit protection fund be deductible for tax purposes?
A number of points, some of them highly critical of the Bill, have been put in this debate. I share some of the anxieties about the structure of these proposals. We shall not at this stage oppose the introduction of the Bill because we believe that the system of licensing and recognition is necessary. However, we are questioning the Bill's form and we shall have to take that matter a little further.
There are many technicalities as well as problems of definitions to be discussed. For example, "a deposit" is defined in no fewer than two clauses of the Bill, and perhaps in other provisions too. At first glance, it is not always easy to see exactly what is provided. I hope that we shall be able to make progress in Committee, which will give us an opportunity to see whether we are able to give the Bill a fair passage in its later stages.

7.18 p.m.

Mr. Denzil Davies: With the leave of the House, perhaps I may try to deal with some of the points which have been raised in this debate.
The hon. Member for Hitchin (Mr. Stewart) raised one fundamental point, to which he referred to as a drafting point. It is not a drafting point, because we are drawing a fundamental distinction between recognised banks and others. I accept that many institutions may feel that they will not be able to satisfy the exacting basic criteria involved in the Bank of England's judgment. I accept that they will feel uneasy and worried about their business. But I must stress that this is a fundamental part of the legislation. We have decided that "bank" is an important word. It is important that the public should realise that "a bank" means something. For that reason, we have produced the Bill.
Of course, as the hon. Member for Honiton (Mr. Emery) said, this is nothing new. It is at the basis of the present system of a primary banking sector and a Department of Trade sector, if I can call it that. But there is a fundamental point here. We feel that it is only right that the word "bank" should be used only by institutions which fulfil these exacting criteria. The criteria will be administered by the Bank of England, and I would have thought that in most cases the Bank of England will know how to determine whether an institution enjoys a high reputation and standing in the financial community. I should make that quite clear, because this is not just a matter of drafting as between one section and another. It is fundamental to the Bill.
The hon. Member for Horncastle (Mr. Tapsell) made a rather strange speech.

At one point he seemed not to have much faith in the Bank of England. He was very sceptical of the Bank's powers in relation to foreign banks or the central banks of some countries. He complained that the Bill was "creeping Socialism", although all that we are doing is building upon the existing system, making it more rational, doing away with the present split between the Department of Trade and the Bank and putting it all under the Bank. We are not setting up a new Socialist institution. Ultimately, the Governor of the Bank of England will be the man who will control the system. I can think of nothing which could be described as less creeping Socialism" as that.
Having said that the Bill was "creeping Socialism", the hon. Gentleman then wanted a third category. He said that if we are to have recognised banks we should also have licensed banks and licensed deposit-taking institutions. That would make the whole system more bureaucratic and more difficult to administer. In addition, I do not think that it would be in accord with what the hon. Gentleman seemed to be saying in other parts of his speech. I am sorry to say it to him, but he did not make the kind of constructive contribution that we have had from some of his hon. Friends, who have had reservations about the Bill but who feel that there is a problem which needs to be resolved by legislation.
Several hon. Members, including the hon. Members for Honiton and for Horn-castle, raised the problem of foreign banks. Of course, if the foreign bank is a subsidiary in this country with limited liability—if it is a British company, albeit a subsidiary of a foreign bank—as hon. Members recognise, there is no problem. The problem arises with a branch; but the problem exists already. There is nothing new in this. The Bank of England now has to try to supervise, and it does, large numbers of branches of foreign banks from different countries. It already faces the difficulty of having to consult with the central banks of countries with different standards of banking. I suggest that it does the job very well. I was surprised that the hon. Member for Horn-castle should have what I regard as profound misgivings. At one stage he seemed to suggest that the Bank of England would be influenced if a country in the Middle East deposited money with the Bank in


London, and that the Bank's high standards of banking supervision would be relaxed in case such a foreign institution took its money out of this country.

Mr. Tapsell: I was making no criticism of the Bank of England. I do not think that the right hon. Gentleman has yet grasped the point that I am making. That is that these foreign bank branches will be operating in the United Kingdom and calling themselves banks. But if this legislation goes through, similar United Kingdom private banks, which are at present also calling themselves banks, will no longer be able to do so and will, therefore, be competing on unequal terms.

Mr. Davies: I accept part of what the hon. Gentleman says. Yes, such bodies will be able to call themselves banks, partly because of the EEC directive, because that directive says that this must be the case. But we are providing that they will have to describe that they are a bank incorporated in a certain country. That may give the public some indication of where they are from and what kind of institution they are.
However, I believe the hon. Gentleman exaggerates the point about competition. I believe that people in this country will, in the main, be much happier and much more likely to go to their own national institutions. I reject entirely the suggestion that in some way the Bank of England will be unable to supervise these branches, because it is doing so at present.

Mr. Tapsell: I apologise to the right hon. Gentleman for interrupting again, but he really is misrepresenting me. I did not say that the Bank of England would not be able to supervise these branches, because it is doing so at present. What I said was that it would not be able to prevent them from using the word "bank".

Mr. Davies: The hon. Gentleman said more than that. If that was all he said, there was no need to bring in the example of the money being deposited by a Middle East bank, because that has nothing to do with it. Of course, we accept entirely that the Bank of England cannot stop such institutions from calling themselves banks. That is inherent in the legislation and has nothing to do with Middle East money. But the point the hon. Gentle-

man made was that somehow they could bring pressure to bear on the Bank of England. I am glad that he is at least now seeking to resile a little from that point.
The hon. Member for Norfolk, South (Mr. MacGregor) raised a number of points and I shall deal with one of them. He asked whether clause 33 would be applied flexibly. I think that he would expect a Treasury Minister to reply "Of course". We shall do our utmost to apply the regulations in a flexible manner.
The hon. Member for Honiton raised the question of wholesale banks and retail banks. I am advised that there is no question of saying that it must be a retail bank, otherwise it cannot call itself a recognised bank. The hon. Gentleman also asked about the company registrar's powers, and whether they could be used to stop bureaux de change from calling themselves banks. I understand that the registrar's powers cover only names and do not cover descriptions. That is where the difficulty lies. This is what we are trying to get at in the legislation, but it is not easy. It is a difficult matter and I shall return to it in a moment.

Mr. MacGregor: Will the right hon. Gentleman deal with my point in relation to clause 23?

Mr. Davies: I shall come to that in a moment. I have a large number of notes which I shall try to deal with. The hon. Member for Norfolk, South and others asked about Giro. The Giro will make a contribution to the Treasury in the same way that it would make that contribution if it were in the private sector. As the hon. Member for Honiton said, the Treasury is providing a guarantee, and that is part of the answer to some of the criticisms which have been made.
I return to the question of clause 35(3) and banking services. Clause 35(3) in itself enables institutions to call themselves banks, as it were, for the purpose of other legislation—for Cheques Act legislation, and for the Income and Corporation Taxes Act. They will still be banks for those purposes, although they may not be recognised banks for the purpose of this legislation.
We have had representations on this, and I take the point, but the difficulty arises that in some cases institutions which


will not be able to call themselves banks now describe themselves as carrying on banking services. That description has various consequences for their business, for example, in relation to bills of exchange, financial trade, letters of credit, and so on. We have received many representations and I am looking at them seriously. I recognise that there is a problem here. It is a problem which is difficult to deal with within the framework of the legislation, because if one extends too far the ability to describe services as "banking" services, the whole division between recognised banks and others, and the intention of the legislation to keep this distinction, tends to break down. However, I recognise the point and I hope that we shall be able to deal with it. But the drafting will have to be fairly tight, otherwise we shall open up a quite large loophole.
I turn to the deposit protection scheme. We are aware that many institutions, especially the clearing banks, are not enthusiastic about the scheme. They do not want to pay out any money, and one can understand that. However, I think the banks recognise that we have gone some way towards meeting many of the points they have made. Perhaps I can mention some of these, because they relate to what was said in the debate. The banks, especially the clearing banks, argued for a small cash fund and a system of guarantees as opposed to large fund. Several hon. Members asked what the point was of having a small fund and back-up guarantees. But if one is talking in terms of a fund, the alternative is to have a large fund and a large initial contribution. The clearing banks argued against that, and we met them by saying that we would start with a small fund of £5 million to £6 million with back-up guarantees. We also said that there would be a limit of £300,000 on the initial contribution and on each further contribution.
The clearing banks also argued for 75 per cent. protection of eligible deposits. Legitimate points have been raised in the debate to the effect that, if one insures deposits, the risky operator—the person who offers a high rate of interest—is at an advantage over someone who runs a prudent business and offers a lower rate of interest. That is one of the basic difficulties in having a bank insurance scheme.

That was why we went for a 75 per cent. figure instead of a 90 per cent. figure or, indeed, a 100 per cent. figure about which some countries are at present talking. A figure of 75 per cent. was fixed because we feel that depositors should not get a high rate of interest without any risk. The hon. Member for Hitchin said that 75 per cent. was too high. I do not agree, I think it is fair. With the limit of eligible deposits being £10,000, 75 per cent. of that figure is fair.
The banks argued for the protection of current as well as deposit accounts, and we have agreed to that. They also argued for the protection of sterling deposits only and we agreed to that. They argued for a maximum liability on contributions. On all these matters we have tried to go some way towards meeting their legitimate representations.
On the liability to contribute, we estimate that 0·3 per cent. of the deposit base would produce a total of £140 million, although the proposed fund will be £5 million. That £140 million is a large sum, but it represents the maximum payout on less than 20,000 protected deposits. I accept entirely that the situation in which that would happen would be very unlikely in our system. But that is why we placed the figure at 0·3 per cent.
The Bill provides for an increase to 0·6 per cent., but that increase can come about only by affirmative resolution. Whatever Government are in power at the time, if they feel it is necessary to increase that ceiling they must obtain an affirmative resolution of both Houses before the increase can take effect. Therefore, there is no question of trying to increase the ceiling without full discussion and full representations being made by the banks to Ministers.
The clearing banks have also criticised the amount that they will have to contribute compared with what others have to contribute. But a scheme that is based entirely on deposits by individuals—and the scheme includes all legal persons, if I can so describe them—on which the clearers hold about 90 per cent. would have borne much more heavily on the clearers. In that case their contribution would have been much higher. The cutoff of £300,000 for contributions to set up and replenish the fund will reduce their contribution.


Indeed, the London clearing banks with just over half the deposit base will contribute just over one-quarter of the cash fund. Of the initial cash fund of £5 million to £6 million the London clearing banks will be contributing one-quarter, but on the other hand will have half the deposit base. I do not think that is unfair, but I can see why the banks want to reduce their contribution. At least I hope that I have shown the House that we have tried, in discussions with the banks, to meet many of their points.
My hon. Friend the Member for Thornaby (Mr. Wrigglesworth) asked about consolidation. I am sorry to disappoint him, but we do not propose to embark on consolidation. To some extent this legislation will make it slightly easier for people who want to find out how banks are regulated and controlled. To that extent this could be said to be a minor consolidation measure. We are still looking for the municipal bank at Stockton-on-Tees. I hope that we will be able to find it before too long.
The hon. Member for Croydon, South (Mr. Clarke) raised a point about Giro and about the trustee savings banks. I made it quite clear that when the trustee savings banks have become private sector institutions so that they are on all fours with the private sector banks they will contribute to the scheme. This will take time, and perhaps the trustee savings banks want to move faster than the Government feel is right in the circumstances. At the moment they are not on all fours with the other banks, but they are in a special position because they are in a transitional period of moving from public to private.
The hon. Member for Norfolk, South raised the point about inter-bank deposits being excluded from clause 23(6). I can give him an assurance that they are excluded. He also raised the question of why we should have a deposit protection scheme at all when we have this wonderful scheme of supervision administered by the Bank of England, which is clearly very good at the job. The reason is that we are talking about 500 institutions—about 250 recognised banks and 250 licensed institutions. It is expecting a lot, even of the Bank of England, with all its expertise and connections with the financial community, to require it to administer

them all and be certain that at every point nothing will happen. Hon. Members should be more realistic.
Of course we do not expect great failures, and of course our system will be a good one. but with 500 institutions in a rapidly changing world, with all the problems relating to the transfer of money, there should be some back up for the public. That is what the deposit protection scheme is all about.
Conservative Members spoke a lot about the banks, the City and the financial community, but they did not say much about the public and its need for protection. The reason we are setting up the fund is so that the public knows that it is being protected.
The hon. Member for Honiton said that this was a sop to consumerism—

Mr. Emery: No depositor has lost any money yet.

Mr. Davies: Certainly no depositor has lost any money, but that does not mean that that system will continue. The world is changing. I did not think that consumerism was a Socialist prerogative. If it is, we shall happily explain that to the public. Apparently it is the Labour Party which is concerned with protecting the consumer, and not the Conservative Party.

Mr. Tapsell: Is the Minister saying that the Government's view is that the banking system in this country is now less secure for depositors than it has been in the past?

Mr. Davies: No I am not saying that. But we are concerned with 500 institutions. We have seen from the secondary banking crisis that the system did not work very well because there was not a sufficiently close connection with the Bank as the supervisory authority for the four clearing banks and all the other institutions. Now we are bringing it all together under the aegis of the Bank of England. I think it would be a very brave man who would say that never in future will there be a banking crisis, and that among those 500 institutions there would never be an individual who was at risk of losing his money. We are protecting the individual and saying that if there were a crisis, he would get 75 per cent. of his money back.
I am surprised that Conservatives have not said much about the consumer, but perhaps when we get into Committee they will look at this Bill more rationally and more logically. I hope that the House will give the Bill a Second Reading.

Question put and agreed to.

Bill accordingly read a Second time.

Bill committed to a Standing Committee pursuant to Standing Order No. 40 (Committal of Bills).

Orders of the Day — BANKING [MONEY]

Queen's Recommendation having been signified—

Resolved,
That, for the purposes of any Act of the present Session to regulate the acceptance of deposits in the course of a business and to confer functions on the Bank of England with respect to the control of institutions carrying on deposit-taking businesses, it is expedient to authorise the payment out of moneys provided by Parliament of any expenditure incurred by the Treasury in making payments to persons appointed to hear certain appeals under that Act and in making good their expenses.—[Mr. John Evans.]

Orders of the Day — CHILDREN AND YOUNG PERSONS (CUSTODIAL REMANDS)

7.38 p.m.

Mr. Roger Sims: I beg to move,
That the Children and Young Persons Act 1969 (Transitional Modifications of Part I) Order 1978. be not made in the form of the draft laid before this House on 1st August 1978 in the last Session of Parliament.
Between October 1977 and September 1978, 56 girls under the age of 17 were remanded to the remand centres at Risley, Low Newton and Pucklechurch, which most of us would consider not the most desirable accommodation for girls of that age. In the same period 45 girls were remanded to Holloway prison, a state of affairs which I am quite sure all hon. Members will agree is quite unacceptable. Indeed, the House will recall that the very first recommendation of the Eleventh Report of the Expenditure Committee on the Children and Young Persons Act was
that the practice of remanding young persons to adult prisons shall cease forthwith".
In its White Paper in response to the report, the Home Office stated that it accepted this recommendation in principle. In paragraph 16, after referring to certain work in hand, the White Paper said:
When these are completed in two or three months' time it should no longer be necessary, at least so far as the London region is concerned, to remand girls to Holloway, save in exceptional circumstances.
That was in May 1976, but, as the figures I have quoted show, girls are still being remanded to Holloway.
Now we have an order which, with effect from 1st January 1979, if implemented, will prevent courts from authorising the detention of girls in prison establishments. Why is the order being brought forward at this stage? Either there is sufficient secure accommodation for girls likely to need it, in which case the order is not necessary, or there is not sufficient secure accommodation available, in which case the order should not be made.
When a child appears before a juvenile court, the proceedings are not likely to be completed at the first appearance. There will almost certainly be a remand, perhaps for the defence to prepare its case if it is contested, and in any event after a finding of guilt, in order for a report


to be prepared. For the remand period, the child will probably be allowed to return home with its parents, but home conditions or the nature of the offence may be such that an interim care order is made in favour of the local authority, which will accommodate the child in one of its community homes.
The problem arises when the child is violent, disturbed or an absconder and needs to be kept in secure accommodation—that is to say, accommodation in which the violent child can be restrained and the absconder contained. By no means every local authority has secure accommodation available, and some interchange between authorities takes place. On 1st November, according to information provided in response to my parliamentary Question, there were sufficient secure places in the whole of England and Wales for no more than 60 girls on remand, and in some areas there were no places at all.
If a child appearing before court is made the subject of an interim care order and the local authority believes that the child needs secure accommodation but has none available, the social worker can apply to the court for a certificate of unruliness. This will be issued by the court only if an application is made, and not of its volition. Before issuing such a certificate, the court must be satisfied that certain criteria laid down by the Home Office are met, in particular that the child is in need of secure accommodation and that none is available within the community home system.
If so satisfied, the court will issue the certificate and the child can then be accommodated in a prison establishment—that is to say, a remand home or a prison. As I have indicated, such certificates of unruliness were issued in respect of 101 girls in the most recent 12-month period. The House will understand, therefore, that the need to accommodate girls in prison has arisen entirely because satisfactory facilities have not been provided in the community home system.
The provision of secure accommodation within this system is the responsibility not of the Home Office but of the Department of Health and Social Security, and I am surprised and disappointed that no Minister from that Department is present for the debate. The importance of this aspect is indicated by the presence

of my hon. Friend the Member for Wallasey (Mrs. Chalker) on the Opposition Benches, and it is unfortunate that no Minister from the Department of Health and Social Security is here.
To be fair, I should mention that the Department has a programme for substantially increasing the number of secure places, but at present there are only 60 places throughout the country and on the Minister's own admission at least four of these are out of use for lack of staff. My suspicion is that there may well be more than four out of action for that reason.
The future programme was detailed by the Secretary of State for Social Services in a reply to my right hon. Friend the Member for Wanstead and Woodford (Mr. Jenkin) on 17th November. I shall not burden the House with details of the programme, but a number of projects are not due for completion until the latter part of 1979 and some in 1980. There is even doubt as to whether there will be sufficient secure accommodation when the present programme has been completed.
In his reply to me on 7th November, the Minister of State said:
I expect that when the present building programme is completed the programme will substantially meet the need for secure accommodation for girls under the age of 17".[Official Report, 7th November 1978; Vol. 957, c. 105.]
That is a qualified answer which does not exactly exude an air of confidence. The truth is that the Department, as in certain other areas, has lacked a sense of urgency or even understanding of the importance of this problem.
Earlier this year, a joint working party of the Magistrates Association, the Association of Metropolitan Authorities and the Association of County Councils, on which the Department was represented—indeed, one of its officials took the chair—examined amongst other matters the problem of secure accommodation for juveniles. Its report, issued in July, said in paragraph 56:
Initially the Department of Health and Social Security also did not fully recognise the priority which should have been accorded to capital projects for children.
That is quite an admission. The next paragraph made the very fair comment:
The grants for the construction of secure accommodation are welcome although they


will be limited in their effect as they do not cover running costs of this type of provision.
However, more recently some action has been taken, and the current DHSS building programme for secure units holds out a reasonable hope that by 1980 or 1981 there will be adequate secure accommodation for girls.
But the order is due to come into effect on 1st January 1979. If it is implemented, what are local authorities to do with girls remanded to their care who are violent, disturbed or absconders? Paragraph 18 of the White Paper on the Children and Young Persons Act, referring to the phasing out of remand to prison establishments, said that this
will have to be subject to the fullest consultation with local authorities.
To be fair, I must mention that such consultation appears to have taken place, but to little effect. The Association of County Councils says that, having been consulted prior to the laying of the order, it has stressed that
local authorities will have difficulty in providing sufficient secure accommodation by that time"—
that is to say, 1st January 1979.
The director of social services in Leicestershire comments that the local authority associations have been consulted about the remand of young people to Prison Department establishments but have informed the Secretary of State that it was not possible to implement the order unless more resources were available.
What will the Secretary of State for Social Services have to say to social workers handling persistent absconders in the Midlands, East Anglia, the southern counties, the South-East—Kent, Surrey and Essex—in all of which regions there are no secure places for girls on remand? What will he say to social workers in the West Country if the two secure places for girls there are occupied, or in Lancashire, Liverpool and Manchester if the six places to cover all that area are full and they are without alternative accommodation for violent girls?

Mr. Robert Kilroy-Silk: I do not know what the Secretary of State will say, but is the hon. Gentleman trying to imply that persistent absconders—no other category—of the age of 15 or 16 ought to be remanded to prisons, to Hol-

loway, when he would be the first to agree that we do not have the power to send them there when they are convicted of an offence? Is he implying that he would want to see these girls in prison when they are technically innocent of an offence when we cannot send them there when they are convicted?

Mr. Sims: Of course I am not implying that. I am saying that if, when a girl comes before a court and is remanded, the circumstances are such that the social worker feels that if that child goes home she may commit further offences, or that the home conditions are such that she should not go back there, it is desirable that that child should be put into accommodation from which she will not abscond. My argument is that there is an insufficiency of that kind of accommodation.
Of course, when the case is dealt with the child may be sent to a home. She may be released back into the community. If the court decides to send that child to a home, again, if she is liable to abscond, she will have to be put into long-term secure accommodation. I am referring purely to short-term remand secure accommodation, which is limited to the figures I have been quoting. What I am saying is that social workers, faced with such a child, will have no alternative facilities. Unless we have replies to these questions, the order should be withdrawn.
What will the Minister of State say to the magistrates at, for example, Chertsey, who comment:
Such secure accommodation as is available in homes administered by the GLC can only be used by Chertsey juvenile court after the needs of the London courts have been satisfied"?
There are only 16 secure places available for the whole of the Greater London area, four of which cannot at present be used because they are inadequately staffed.
What will the hon. Gentleman say to the Association of Magisterial Officers in Cornwall, which makes the point that if a girl in respect of whom at present an unruly certificate is issued is remanded in future to local authority care, she may continue to abscond, fail to appear at court and commit further offences, and that as that would occur whilst she was in the care of the local authority it might well result in claims for compensation


being made against the authorities, which are technically responsible for failing to contain the girl?
What is the Minister's reaction to the magistrates at Solihull, whose case would, I know, have been put by my hon. and learned Friend the Member for Solihull (Mr. Grieve) were he not abroad on European parliamentary business? The Solihull justices say that it is their experience over the past two years that there has been a marked increase in violent behaviour on the part of girls under the age of 17 years, and they have given me details of some of these cases which make horrifying reading. In one it needed six men to subdue a swearing and struggling girl before she could be taken to Risley remand centre.
What can Solihull do, faced with such a situation after 1st January? The Solihull justices pose the direct question:
If the Secretary of State makes the order, the justices would ask what assurances he can give that secure places will be available in the vicinity of the court other than in prison establishments".
I hope that the Minister of State can answer. I hope, too, that he can satisfy magistrates in Derbyshire, Nottinghamshire, South Lincolnshire and Humberside, who tell me that they have no secure places available to them, and in Hertfordshire, where the only two places are occupied most of the time.
Only last week in Horsham a certificate of unruliness had to be issued in respect of a girl described as an aggressive absconder, who is now in Holloway. At least in Sussex there are plans for six secure places at Hassocks, but they are to be built in 1980 for readiness in 1981. What is to happen to an aggressive absconder coming before the Sussex courts after 1st January. Again, if the Minister has no satisfactory answers to these questions, the order should be withdrawn.
The House should consider the wider implications of the order. If there is no secure accommodation for the type of girls I have described, and it is no longer possible to accommodate them in prison establishments, the social services must send them to their traditional community homes, where they are bound to be a disruptive, if not a literally destructive, influence and from which they are very liable to abscond and then commit further offences such as those involving house-

breaking and violence, which brought them before the courts in the first place. Or there is the danger that, rather than face such a prospect, the social worker will simply send the girls back home, fom which, of course, they will continue their criminal activities.
I return to the point with which I started—that if there are adequate secure places for girls on remand the order is not needed. If there are not sufficient places, the order should not be made, and I think that I have clearly demonstrated that the latter is the case. Making the order is not the answer to the problem of inadequate secure accommodation. It makes no more sense than to seek to solve the prison overcrowding problem by forbidding courts to send people to prison.
The motives behind the order are entirely admirable and are fully supported on the Conservative Benches. Its timing is quite unrealistic. This is not a matter that should be one of controversy between the two sides of the House. We all have at heart the best interests of the community generally and of young offenders.

Mr. Max Madden: Is the hon. Gentleman aware of the position in Humberside, an area to which he referred, where the regional children's committee, in consultation with the local authorities, is proposing to close a community home in my constituency, a home called Dobroyd Castle? Does not he think that, in view of the shortages of secure accommodation to which he has referred, before confirming the closure the Tory local authorities involved in the decision should at least consider the possibility of providing secure accommodation at Dobroyd Castle?

Mr. Sims: I am not familiar with the case to which the hon. Gentleman refers, but on the face of it there would be a case for the regional planning committee, which decides these matters, considering converting the home into secure accommodation. But it might not lend itself to that, and without knowing the details in that region I cannot comment. However, I take the hon. Gentleman's point.
I urge the Minister as strongly as I can to withdraw the order and bring it forward again when his right hon. Friend the Secretary of State for Social Services,


on whom a great deal of responsibility in this matter lies, is in a position to offer adequate alternatives to prison for girls.

7.56 p.m.

Mr. Robert Kilroy-Silk: We have had another typical example of Tory Front Bench hypocrisy.

Mr. Edward Gardner: No.

Mr. Kilroy-Silk: Perhaps the hon. and learned Gentleman has not seen the newspapers today. They are all emblazoned with the news that the Tories will tonight oppose the order ending remands of 16-year-old girls to prison on unruly certificates. We have heard a very responsible, moderate, sensible speech from the same hon. Member, the hon. Member for Chislehurst (Mr. Sims), as issued that inflamatory press statement outside the House. Is not this yet another example of Tory hypocrisy, the attempt to play it both ways, to appear tough on the law and order issue outside the House and yet respectable and sensible when the Tories are properly confronted with the issue inside the Chamber?

Mr. Sims: I do not want to start a dogfight on this matter. I assure the hon. Gentleman that if he saw the press release that I issued I think he would agree that the statement he has seen in the press entirely misinterprets it. I made quite clear what were my views. My press release was a condensed version of what I have just said.

Mr. Kilroy-Silk: I must, and of course will, accept the hon. Gentleman's disclaimer. But it is clear from what the world has read that the Conservative Front Bench was officially opposing the order. That is not what the hon. Gentleman said in his speech. It is not what he is doing. We should stop the double talk and keep to one story at all times and all places, which is not what the Tory Party has been doing on this and other issues and on the so-called law and order issue generally.
It is no good the hon. Member for Wallasey (Mrs. Chalker) shaking her head in that severe, schoolmasterly fashion.
[HON. MEMBERS: "Schoolmasterly?"] I used the word advisedly.

I welcome, as the hon. Member for Chislehurst was unable to, and welcome enthusiastically, the Government's fulfilling a commitment that they have made repeatedly over several years to end the remand of schoolgirls to prison at the age with which the order deals.
The order is a limited attempt to make our prison system and our penal policy to some extent more civilised and more humane. It is limited because it applies only to girls, and then only to girls who are on unruly certificates and not to other categories of schoolgirls who are remanded. Most important, it is limited because it applies only to girls. Nevertheless, it is an important and welcome contribution, and I congratulate my hon. Friend the Minister and my right hon. Friends on having continued the progress that was started last year, when the remand of 15-year-old girls was ended by the Children and Young Persons Act 1969 (Transitional Modifications of Part I) Order 1977.
The impetus of ending remands of schoolchildren to prison department establishments has been generated by this Government. It has been this Government in the past four years, under severe difficulties, both financial and Parliamentarly, and in the face of political and public opinion constraints, who nevertheless have found themselves able first to end the remand of girls of 15, then in the Certificates of Unruly Character Conditions Order of August last year to tighten up the criteria by which girls of that age could be remanded to prison department establishments, thereby reducing the number of such remands, and now to end those remands altogether. Indeed, the order to which I have referred that tightened up the criteria which had to be satisfied before an unruly certificate could be granted for all schoolchildren led to a very sharp and immediate drop in the receptions of all 14 to 16-year-old schoolchildren at that time. The drop so far seems to have been maintained, though I suggest that it is rather too early to be optimistic about its results in the next year or so. But certainly the effect of the measures which the Government have taken so far are demonstrated by the figures to have had quite a significant impact on the number of such receptions into prison department establishments.
As I said, we are speaking about only a limited number of girls. We are not talking about all girls in this age group who are remanded to prison establishments, be they remand centres or local prisons. There were 231 girls between 14 and 16 who were received as untried prisoners in 1977 into prisons and prison department establishments, of whom the 101 referred to by the hon. Member for Chislehurst were girls on reception on unruly certificates. So a total of 231 schoolgirls aged between 15 and 16 were put into prisons—remand centres—which every hon. Member on both sides of the House has constantly criticised as being barbaric, inhumane, overcrowded and unsanitary institutions. Yet for some reason the hon. Member for Chislehurst suggests that if we have not the alternative resources elsewhere, though he agrees that it is not right and proper to legislate so that we can send girls of 14, 15 or 16 to prison when they are convicted, somehow he still finds it acceptable and desirable.

Mr. Sims: No.

Mr. Kilroy-Silk: But the hon. Member has asked my right hon. Friend to withdraw this order. If he is asking for the order to be withdrawn, he is asking for the continuation of the remand of such girls to prisons on unruly certificates—not of the more serious category who form the total of that 231, but the less serious of the 231. That is why we are making this small but significant start. We are starting with the less serious—those on unruly certificates, not those sentenced to borstal training. Yet the hon. Member has suggested that even those who are least harmful, relatively, of that group should be sent to prison today, tomorrow and after January next year, when he is not prepared to say that we ought to legislate to send all 14-year-olds and above to prison once they have been convicted of offences.
That might be a perfectly tenable position, and I have no doubt that many right hon. and hon. Members would accept it and argue for it very strongly. But it is not the law. Unless someone argues that case and makes it, it is totally indefensible to say that we shall not allow the courts to sentence school children to prison but that we shall allow them to

remand them to prison department establishments, remand centres and local prisons when they are considered to be unruly. That seems to me to be a totally indefensible position which can be justified only on administrative grounds of convenience, which is no justification at all.

Mr. Ivan Lawrence: Does the hon. Member draw no distinction between the regime on remand in a prison and the regime which follows a prison sentence? Will he say which women's prisons girls are sent to on remand which are barbaric?

Mr. Kilroy-Silk: The regimes on remand and in prison are different theoretically, but in practice they are extremely similar. To all intents and purposes, a remand centre is no different. In many cases, its regime and living and working conditions may be worse than in many prisons. There are lots of so-called rights which remand prisoners possess but which they do not possess in fact in our present prison system.
I go back to the 231 girls. I am concerned not just to ensure that the order goes through but to go further so that we end the remand of all girls of 16 and under to all prison department establishments, whatever their regimes happen to be.
Of the 231 who were received into prison department establishments and in fact tried in 1971, three were eventually found not guilty. A staggering 147 of the 231 girls were eventually given noncustodial sentences. So we have a total of 150 of the 231 girls whom the courts decided eventually had committed offences which were not serious enough to warrant incarceration in any kind of institution, yet we had kept them in prisons, and the hon. Member for Chislehurst wants that situation to continue. We had imprisoned them in some cases for considerably long periods. Each of those 150 girls whom the courts, after the full process of law, decided were not guilty or had committed offences not serious enough to warrant any form of detention had in effect served prison sentences. To me, that is totally unjustifiable.

Mr. Patrick Mayhew: Does the hon. Member think on reflection that his last point is entirely fair? Surely there are many instances in


which a court takes into account very properly the fact that a young person has been in custody for a period of weeks or possibly, regrettably, even months on remand and that that experience in itself has constituted sufficient punishment of a custodial nature to enable the court thereafter to say that the child or young person need no longer lose his or her liberty.

Mr. Kilroy-Silk: Of course, and the hon. and learned Member will know that very often the courts want a short, sharp remand. But let me make the point again that they are not entitled to do it once they have convicted, yet they will do it by the back door when children are still technically innocent. I accept that very often a non-custodial sentence will be given because it is felt that the offender has already been punished sufficiently whilst on remand. But I cannot accept the hypocrisy of that. I know that the hon. and learned Member was not supporting or defending it, but I am sure that he will agree with me that, to say the least, it is a hypocritical system of justice which will use a way of getting a person into prison when it is not possible to do it after the due process of the law.
Remanding children in prison is a back door, shoddy and despicable way of punishing them. If we want to punish them by imprisonment, if we believe that some children of that age are extremely difficult, very large, aggressive, recalcitrant and unruly, as the legal definition has it, and should be imprisoned from the age of 14, 12 or even 10, let us be honest about it, let us legislate and let us do it. But let us not have the continuing hypocrisy of saying "We do not treat children like that in our country, we have the Children and Young Persons Act, and we think in terms of welfare and not punishment, but we imprison them behind the scenes technically and as an administrative convenience", and then use the argument employed by the hon. and learned Member for Royal Tunbridge Wells (Mr. Mayhew).
I return again to the 231 girls to whom I referred just now, 150 of whom were found not guilty or given non-custodial sentences, many of them having spent weeks and in some cases months in prisons when they were all unconvicted and

all technically innocent. We are still imprisoning, and we shall go on imprisoning even after this order is passed, a large number of girls who by our judicial 'procedures are still innocent of any offence at that time.
Now that we are celebrating, if it can be called that, the end of remanding at least one category of girls to prisons, perhaps we ought then to move on to ending the remand of boys—at least those who are on unruly certificates, if not for all boys between 14 and 16 years old who are remanded in prisons. In 1977, there were—

Mr. Deputy Speaker (Mr. Oscar Murton): The debate has a very narrow scope. The hon. Member must confine himself to the desirability or otherwise of what is envisaged in the change of the minimum age for girls. We must not stray into the subject of boys, because the order does not concern itself with them.

Mr. Kilroy-Silk: With respect, Mr. Deputy Speaker, it is fair, when we are talking about the same categories of individuals, the same offences and the same conditions, to draw a comparison between how we are treating one special, privileged group, and how we are treating another group, which is less privileged.
There were 3,841 boys remanded in 1977, far fewer than the 4,500 remanded in 1976 or the 5,337 remanded in 1975. As with the girls on remand, there has been a considerable decrease in the number of boys in the age range 14 to 16 who have been remanded at prison department establishments. Just as a significant proportion of the girls are eventually found not guilty, or given a non-custodial sentence, so also is a large proportion of the boys in that age group. Of the 3,841 boys held on remand in 1977, 1,031 were eventually given a non-custodial sentence while 37 were eventually found not guilty.
The same kind of considerations which apply to 14 to 16-year-old girls apply equally to 14 to 16-year-old boys—

Mr. Deputy Speaker: Order. I have given the hon. Member some scope so that he could draw the analogy between the two sexes. He must not now start expatiating on the subject of boys. We are dealing in this debate with females.

Mr. Kilroy-Silk: You surprise me, Mr. Deputy Speaker. I knew—

Mr. Deputy Speaker: Order. I may surprise the hon. Gentleman, but that is my privilege.

Mr. Kilroy-Silk: What I was about to say, when I spoke of your surprising me, Mr. Deputy Speaker, was that I knew that l was sailing close to the wind when I decided to sail. You surprised me by exercising your privilege. I was hoping that you would not, at least not at this time of night. I accept your ruling. I was trying it on, and I had said most of what I wanted to say.
We have, for tactical and administrative reasons, moved towards ending the remand of these girls. I hope that the Minister will give a clear and specific commitment to the effect that he will be moving further along that progressive road leading to the end of the remand of all schoolgirls of that age. I trust that he will feel able to comment on that in his reply. My hope is that the Government will go on from that point to apply the same vigour and determination which they have demonstrated in seeking to end the remand of girls to ending the remand of 14-year-old boys and, perhaps in a year's time the remand of 15-year-old boys, culminating in ending the remand of all schoolboys.
I have some questions to ask my hon. Friend. Will he say what extra resources the Government have and will be providing, given that there is not sufficient secure accommodation within the community? This was a point made by the hon. Member for Chislehurst and it is one that I have made on many occasions. Insufficient resources have been allocated by successive Governments of all parties to allow the proper implementation of the spirit and intentions of the Children and Young Persons Act 1969. Can my hon. Friend confirm my understanding that there will be an approximate trebling of the number of secure places by 1980 as compared with the number inherited by the Labour Government from their predecessors?
It is all very well for Tory Members to claim that there is no alternative provision for the girls whom we have now decided not to remand in prison. They, too, were equally guilty, during their

period of office, of failing to provide sufficient resources. They are responsible, as my hon. Friend the Member for Sowerby (Mr. Madden) pointed out, for closing down facilities in some areas and then getting Opposition Front Bench spokesmen to claim that there are insufficient places.
This issue is not the responsibility of my hon. Friend the Minister of State. We are discussing it tonight because of the lethargy of the Department of Health and Social Security—

Mr. Lawrence: Where is the Secretary of State?

Mr. Kilroy-Silk: My right hon. Friend the Secretary of State should be here to defend and explain his position, not the Minister of State, Home Office. Unfortunately, as on so many occasions—and I have played my part in highlighting this point—the Home Office has to take the rap for the inefficiencies at the Department of Health and Social Security. This complaint concerns the remanding of schoolchildren into prison establishments because the Department of Health and Social Security has not provided sufficient resources to look after such people in the community. It concerns equally the treatment of alcoholics, vagrants or mentally abnormal offenders, and a variety of other categories of offenders about which the Home Office constantly has to answer questions, face criticism, and take the responsibility. The real responsibility lies with the Department of Health and Social Security, at which the criticism should be directed.
I reinforce the recommendation contained in the last report of the Expenditure Committee and ask why the Home Office does not charge the Department of Health and Social Security for all of the places which that Department causes to be taken in our prisons. There is a lot of money there. If we work it out on the basis of answers to parliamentary Questions, the cost is about £96 a week per person. My hon. Friend would be coining it, metaphorically.
I hope that my hon. Friend will take this point seriously. Local authorities adopt this approach. If they use the services of another authority, they must pay for it. This applies when they are sending


children across the border to a neighbouring school, using community homes, old persons' homes and so on. When a local authority discovers that it is paying out a lot of money to another authority it often decides that it might as well build the facility itself.
If the Department of Health and Social Security had to pay £96 per week each for all the 3,841 boys remanded in 1977 that would amount to a lot of money. I leave out of consideration for the moment all the mentally abnormal offenders, the alcoholics and the vagrants. If the DHSS had to do this it may be that we would get all of the facilities that we all want. I hope that my hon. Friend will be slightly more aggressive in pushing the DHSS so that, later in the year, he will be able to come to the House with a further order ending the remanding of boys aged 14 and then, a little later, with a similar order applying to boys aged 15.

8.18 p.m.

Mr. Edward Gardner: The hon. Member for Ormskirk (Mr. Kilroy-Silk) has said much tonight with which I and hon. Members on both sides of the House would agree. However, he spoils his case with his wild political comments, which can do nothing but undermine our faith in his general judgment.
This order will have the effect, as my hon. Friend the Member for Chislehurst (Mr. Sims) has pointed out, of making it impossible for the courts to issue certificates of unruliness in respect of girls under the age of 17. The result will be that these girls will be sent to ordinary community homes. The inevitable risk will be that their presence will disrupt the regime of the home, and—I think it ought to be faced by the Home Office—will put in peril the other children in the home. The law at present allows unruly girls of 15 and 16 to be committed to remand centres, or prison if there are no remand centres available. I join the hon. Member for Ormskirk when I say, in sympathy with hon. Members on both sides of the House, that it is appalling that children should end up in remand centres or, indeed, in prison.
It is equally appalling that unruly girls aged 15 and 16 should be sent to ordinary community homes, thus putting in peril the public at large because they can easily

escape from such homes. I shall be pleased to hear the Minister's comments about the danger of such girls putting in peril the safety of other children in those community homes.

The Minister of State, Home Office (Mr. Brynmor John): If there were sufficient secure places available, I presume that the hon. and learned Member would not make such criticisms.

Mr. Gardner: The Minister has anticipated my next argument. There is not sufficient accommodation. Where there are disruptive and violent children who qualify under the present law as children whose character is so unruly that they cannot be safely committed to the care of a local authority, one must face the question: where they are to be sent? What are we to do with them? The bleak fact is that behind the order lies the absence of secure community homes to which such children can be sent.
The responsibility for the provision of community homes is that of the Department of Health and Social Security. The responsibility for the provision of community homes and for the care of unruly girls of this age should rest with one Department, or with two Departments which can work together.
I understand that what the Department of Health and Social Security does with its right hand is foreign and unknown to the Home Office, which might act in a different way. There seems to be no cooperation or co-ordination. If the Home Office had an effective influence over the Department of Health and Social Security and an active Home Secretary who was determined to solve the problem, we should now have a programme for building more community homes.
I suggest to the Minister that the time has come when we can no longer talk about the lack of resources. We must now talk about the essential need for more community homes and the proper use of them. I suggest that there should be more than one type of community home. There should be three categories. We should have the ordinary community home which we now have, another category which would provide security but not the strictest type of security, and the fully secure community home to be used for the worst cases. No Government can escape such a programme.
The resources can be met partly by reducing other programmes of development in penal establishments. I do not suggest that the prisons should suffer. Other penal establishments could stand a reduction in the funds spent upon them. Such funds saved could be diverted to building community homes.
I am anxious to see such a programme because without it the Government will be faced, as they are now, with a lack of community homes and the dangers to the community caused by children who can escape too easily from ordinary community homes. Such children are enabled to return to their criminal associates and to participate in the crimes for which they were originally sentenced. There is nothing to discipline children of that kind.
I urge the Minister to consider urgently the building of such homes. I hope that he will do all he can to encourage the Department of Health and Social Security to co-operate with him. All shades of political opinion, magistrates, social workers and committees composed of Members on both sides of the House agree that we should have an amendment to the Children and Young Persons Act 1969 which would give the courts the power to send children who fall into this and similar categories to secure community homes. Such homes are not available at present.

8.27 p.m.

Mr. Max Madden: At the centre of the debate is the opposition of many hon. Members to the prospect of children on remand having to spend time in prison. That is repugnant to all hon. Members and all sections of the public.
Can the Minister give us some information about the length of time that children have been subjected to confinement in prison while they are on remand? There are different regimes for those who are on remand and those who have been sentenced. But none of us is under any illusion about the shattering impact on a child of spending any time in prison, whatever the regime. We must all be anxious about providing accommodation to avoid any child having to spend time in prison while on remand. I should welcome some information on the number of children who have been so imprisoned.
The hon. Member for Chislehurst (Mr. Sims) took us on a tour of the United

Kingdom and ask the Minister of State a number of questions about the situation in various parts of the United Kingdom.I shall ask my hon. Friend for some information confined to one part of the United Kingdom—namely, Yorkshire and Humberside.
I preface my remarks by expressing regret that the Department of Health and Social Security is not represented in the Chamber this evening. I have been in correspondence with the Department and I have tabled a number of Questions on the threatened closure of Bobroyd Castle community home in my constituency.
The brief history is that Calderdale council, the local authority, in consultation with the regional children's committee, is contemplating closing the home in the early part of next year. The main reason, so far as I have been able to comprehend it, is that it believes that future provision will not warrant keeping open the community home. Secondly, a number of predominantly Conservative-controlled authorities have withdrawn from the pooling arrangements which provided necessary finance for community homes in York shire and Humberside. That has been an important factor in the threatened closure of the home.
It does not seem that the Department of Health and Social Security has a total say in deciding whether a community home remains open and the finances that are made available for such a home. In the replies that I have received, I have been told that the final decision rests with the local authority—namely, Calder-dale council—in consultation with the regional children's committee. The Secretary of State has an opportunity only to approve the deletion of any community home from the regional plan of a region. It is a curious position and it seems that a major interest and influence lie with local authorities, including, in view of the composition of local government at present, predominantly Tory-controlled authorities.
In the replies that I have received, I have been told that over the next three years the number of community home places that are expected to be necessary in Yorkshire and Humberside will decline compared with the number provided since 1971. I find that interesting. My right hon. Friend the Secretary of State says


that he has no reason to query those forecasts. I shall be extremely grateful if the Minister of State will make inquiries with a view to assuring us that the forecasts are correct. There is expected to be an increase in the number of girls who will be in need of community home places, but the number of places needed for boys is expected to fall quite sharply.
The home to which I have referred was supervised until 1971 by the Home Office. I do not think that many will disagree with me when I say that during the time that the Home Office was in charge of the home it was not exactly lavish with expenditure. There has been considerable neglect of the buildings. Responsibility must be laid at the threshold of the Home Office.
If we have nothing else from the debate, I should like an assurance from my hon. Friend the Minister that he will make urgent inquiries and undertake maximum consultation with the Department of Health and Social Security to ensure that everything possible is done to prevent a final decision being taken to close the community home unless and until the Home Office and the DHSS are entirely confident that closure is justified based on expected demand.
Secondly, I should like to know what provision is now made for secure accommodation within the Yorkshire and Humberside region. That seems to be the second pertinent point to arise from the debate. It will be helpful if my hon. Friend gives some indication of the present provision of secure accommodation within the community home network and the expected provision within the foreseeable future.
I join with those who have given a welcome to the order. Everything should be done to ensure that there is adequate and proper provision of secure accommodation within the community home service and that no girl or boy is subjected to any time in prison awaiting remand. The Government should endeavour to abolish the periods spent in prison as quickly as possible in the knowledge that that approach will receive the support of both sides of the House and the support of the overwhelming majority of the general public.

8.35 p.m.

Mr. Patrick Mayhew: The hon. Member for Sowerby (Mr. Madden) has properly and usefully drawn attention to a problem in his part of the world, and this is just the sort of debate which gives hon. Members the rare opportunity to do that.
I shall comment on some of the hon. Gentleman's remarks later, but I start by asking the Minister three questions. First, does he acknowledge that there is any need for secure accommodation for children? Secondly, does he consider that there is enough secure accommodation? Thirdly, why is the order being brought forward now?
The first question answers itself. Anyone with experience of the capacity of a very small minority of young people to commit violent offences must recognise that there is a need for secure accommodation when a care order is made. If we do not agree on that, we disagree on one of the most important factors in this problem.
As to whether there is enough secure accommodation, I have only to say that there is none in Kent. The comments of my hon. Friend the Member for Chislehurst (Mr. Sims) show that that situation obtains in a very wide area in the country. I see that the Minister is shaking his head. I look forward to hearing what he has to say in rebuttal. I know that in my constituency children who are placed in secure accommodation have to go north of the river into Middlesex.
If there is not enough secure accommodation and the Government recognise that fact, we have to ask why the order is being introduced now. All of us in the rather sparsely attended Chamber are deeply interested in this problem and we agree that it is offensive for children and young people to be remanded into prison or to serve prison sentences.
However, we must decide which interest is to be put uppermost. Should we always put the interest of the offender, or the person accused of an offence, above the interest of the people in the area where that young person has been living? It is often a difficult decision, but in the end one must put the community interest uppermost.
My hon. and learned Friend the Member for South Fylde (Mr. Gardner) spoke


about young people escaping from community homes. There is hardly a question of having to escape from those homes, because children have only to walk out through an unlocked door when there is no secure accommodation. Time and again there have been examples of young people leaving community homes and committing one offence after another.
I believe that community homes can work. I do not share the view that they are a misconceived idea which cannot work. I have an example in my constituency of a home that is highly successful because it carries the approval, confidence and support of the community. Such homes cannot succeed without the confidence of the community. If they do not have that confidence, they are not community homes, because they derive nothing from the community.
I have also, alas, an example of that latter category in my constituency—a home that was burnt down as a result of arson only a month ago. I am being besieged by constituents who ask me to help them to ensure that the home is not rebuilt. I sympathise with their view, but I have declined to support them because I believe that the community home must work. It can do so only if it has the confidence of the community, and it will get that confidence only if it has secure accommodation. That is what we are asking for.
At the moment, how can I persuade those in my constituency who are worried for the safety of their community, worried for their own safety, worried for the safety of their property and their children, and perhaps worried about the safety of elderly people, that they can have confidence in a reopened home unless it is to have secure accommodation incorporated in it?
I am told tonight by Labour Members that this is the fault solely of county councils. That is not true. The rate support grant has been cut in the rural areas. The Department of Health and Social Security also has a part to play, in which it has fallen down. I condemn the absence from the debate tonight of a Minister from that Department.
I hope that the Minister will answer the three questions that I ventured to put to him. I have an idea what those answers must be. Why, therefore, is the

order being brought forward when there is not nearly enough secure accommodation? At the end of the day, the security of the community must be uppermost. Sad, offensive and regrettable though it may be that in a certain very small number of extreme cases a young person should be committed on remand to a prison, in the absence of secure accommodation in the community homes that must continue to happen.

8.41 p.m.

Mr. Ivan Lawrence: I too, Mr. Deputy Speaker, shall be short. We are all agreed in this place that it is thoroughly undesirable that girls aged 15 and 16 should ever be sent to prison on remand. There is no point in arguing that, because we are all at one. The question before the House is this: is the order sensible?
Bearing in mind that there is nowhere else to send girls who are unruly, bearing in mind that the public have a right to be protected against those who are likely to be violent or unruly, and bearing in mind that unruly orders would not have been made if these girls had not been the sort of girls against whom the public needs to be protected, is it sensible to say to the magistrates "You cannot remand them anywhere in safe keeping until such time as the matter is tried?"
If I were to go back to my constituents over the weekend and say that I had supported a measure which removed all restraint from the albeit relatively few girls who are in need of some restraint—because that is the nature of the order—my constituents would think me mad.
The hon. Member for Ormskirk (Mr. Kilroy-Silk) is attacking the wrong target when he attacks Conservatives. He should be attacking the Government, with all the force at his disposal, for failing to provide a decent alternative form of secure accommodation for these girls aged 15 and 16. He should devote all his attention to his Government, where he will have more effect than in attacking us for doubting the common sense of the order.
It can be said, and it ought to be said, that it is possible, of course, to exaggerate the argument that it is barbaric and that it is wholly useless to send girls to these establishments, for even a short period of time. It may be that Risley


is barbaric, but I do not think that Holloway is barbaric. There is a difference between a remand regime and a prison regime. You can rest assured, Mr. Deputy Speaker, that the prison officers at these establishments try, at their best, to make sure that the worst influences of the prison regime are not visited upon young girls on remand who have not yet been tried.
Hon. Gentlemen may say that it is hypocritical, but so much in our system has emerged so roughly through the ages that it appears with our modern viewpoint and the benefit of hindsight to be hypocritical. The fact remains that many judges, knowing that not only young girls but all sorts of offenders, having had a glimpse of the really repulsive existence that faces them in prison if they offend again, are deterred from doing something that they might otherwise have been tempted to do, are inclined to impose a custodial sentence.
Counsel who appear often say "My client, having spent two, three or four weeks inside that establishment, is terrified by what he has seen." Their being terrified is a reason for feeling perhaps that such people have learnt something and will be deterred from offending in that way again. It may be illogical or even hypocritical, but there is a practical value there which should not be underestimated. Indeed, the courts' thinking often is that perhaps a person has been deterred.
The matter goes closer than that. Prison officers are convinced that early acquaintance with prisons by offenders of all ages is sometimes the strongest deterrent that could ever be advanced. Prison officers throughout the country would tell the hon. Member for Ormskirk, if he were to ask them, that we waste a good deal of our time in the penal system trying to keep people out of prison until it is too late to deter them from any form of criminal conduct when perhaps they should be given a glimpse of imprisonment and what it means at an early age. Therefore, although I do not press the point, because it is not the strongest of points against the order, I suggest that we should consider whether girls of 15 or 16 who are on the threshold of uncontrollability, of delinquency, seeing what a prison is like, even from the viewpoint of

a remand regime, and seeing, hearing and talking to those inside, would be deterred.

Mr. John: If I follow the hon. Gentleman's argument aright, he is calling for a reversal of the Criminal Justice Acts and, paradoxically, wanting to make it easier to imprison people the younger they are rather than when they become adults. Is that what he is advocating?

Mr. Lawrence: I am making the point in a general way—I hope, Mr. Deputy Speaker, that you will permit me to make it, because it is serious and important—that if offenders of any age are shown at an early stage what imprisonment means, they may be deterred from taking part in further criminality. At present, we tend to keep that deterrent until the very last moment when perhaps a person has got into the habit of offending and of having sentences imposed which are no longer more than pats on the head and farewells, and prison is no longer a deterrent. Such a person then has to be imprisoned for years. I suggest that a short, sharp sentence at an earlier age might have had a more deterrent effect. I am not saying this off the top of my head. This is what seasoned prison officers who have seen the effect of imprisonment upon inmates have put to me in a number of cases in different parts of the country.

Mr. Madden: The hon. Gentleman seemed in the earlier part of his speech to share with the rest of us a repugnance at children being put in prison, but in the latter part of his speech he seemed to contradict that view. From his experience with young offenders and others, does he agree that one can hypothesise about the effect of prison on young children encouraging them to further criminal activities? Secondly, does he agree that, especially among young people, a term of imprisonment can sometimes be a status symbol and that we should be wary of placing that on the shoulders of children?

Mr. Lawrence: I concede the two points made by the hon. Gentleman, but he misunderstands the burden of my argument. I concede that it is thoroughly undesirable to allow girls of 15 and 16 to be kept in prison for any length of time, but the case is not as bad as it is sometimes painted because there are certain compensating advantages. Of


course, they may not compensate for anything like the degree of blame which can be attributed to a system which perpetrates this form of barbarity as it has been portrayed. Nevertheless, the picture is not necessarily in all establishments quite as bad as it is painted.
All of us in this place, whether we have said so or whether it has merely been the burden of our argument, are focusing on the need for Government action. Whether it is the responsibility of the Minister of State, Home Office, or the Secretary of State for Social Services does not for the moment concern me. It is high time that the Government remedied the evil of the shortage of secure accommodation where these young can be kept, so that society may be protected while the young people are treated in a humane and decent way. Until that is done, there is no sense in an order such as this. It is for that reason that this side of the House was perfectly right to have objected to its production.

8.52 p.m.

The Minister of State, Home Office (Mr. Brynmor John): One purpose that this debate will serve is to disabuse hon. Members, particularly Conservative Members, of their widespread misconceptions about the order and about the availability of accommodation, particularly secure accommodation, in the present system.
I should first like to lay the groundwork for what has been universally agreed to be the correctness of what we are doing. The Eleventh Report of the Expenditure Committee suggested three years ago that the practice of remanding juveniles to adult prisons should cease forthwith, and the Government accepted the recommendation.
More important, and more recently, the working party of the magistrates and local authorities also took the view very strongly that boy sand girls under 17 should not be remanded to prison department accommodation, and again expressed the hope that rapid progress would be made. It is against the background of the need to provide secure care accommodation that we have had to decide on how we phase it in. The first decision by the Government, which was implemented in March 1977, was the ending of the remanding of 14-year-old

girls to prison department custody and accommodation.
The same objections were made by the local authorities when that was done as are being made in this debate by the Opposition on their behalf. In practice, it has been shown that not one of them has been borne out. The local authorities have been able to cope without any undue difficulty. I hope, therefore, that hon. Members will not take the easy answer that because people complain this necessarily shows the inability of the authorities to meet the situation. Sometimes authorities need a prod to do what is right.
Secondly, we then made tighter rules with regard to certificates of unruly character. Those took effect on 1st August last year. They narrowed the criteria on which certificates of unruliness could be made. My hon. Friend the Member for Ormskirk (Mr. Kilroy-Silk) said that it is perhaps too early to have a settled view on what effect that has had on the numbers. But, so far as it goes, it has certainly had an encouraging effect. It has reduced by some 20 per cent. the total number of remands of juveniles to prison department establishments. That, too, plays a part in the pattern we are furthering tonight.
We then faced the problem of how to take the next step. We were conscious of the number of secure places available. The hon. and learned Member for Royal Tunbridge Wells (Mr. Mayhew) was at his best when he asked me three questions. However, his speech when he tried to develop them was rather less good.

Mr. Kilroy-Silk: It is par for the course.

Mr. John: It may be par for the course, as my hon. Friend says. We have all been round that course often enough. We accept the need for secure accommodation. Therefore, we considered whether the next extension should be to 14-year-old boys, but the number of 600 to 700, in the light of the present number of secure places available, ruled this out. The decision we made to move to the next category, of 15 to 16-year-old girls, did not rest entirely on the factor of numbers. Because there is no detention centre provision for girls, a girl of this age who is brought before the court must be sentenced to borstal training, local authority


care, or a non-custodial sentence. There are only those possibilities.
In regard to those who are committed to a magistrates' court with a view to borstal training, a certificate of unruliness is not required for a remand in custody. I wish to make it clear that in that category there will still be a power for girls of that age to be remanded to prison department accommodation.
In this instance we are dealing with those girls in respect of whom either local authority care or a non-custodial penalty would be the sentence. My point is that since local authorities in many cases would have to look after those girls after sentence, it is appropriate that we should move in a direction that would extend their care to pre-sentencing as well as to what happens afterwards.

Mr. Kilroy-Silk: My hon. Friend has mentioned girls on remand who may be sentenced to borstal training. He will recall that I asked whether any progress was being made in ending those remands. Can he throw any light on the Government's intentions in that respect?

Mr. John: Before I reply to my hon. Friend, I will give way to the hon. and learned Member for South Fylde (Mr. Gardner).

Mr. Gardner: I am seeking information. Is the Minister suggesting that girls of 15 and 16 can be remanded to borstal for the period in which they are awaiting trial? I agree with him that they can be committed to a borstal institution by order of the court, but is he satisfied that that is a suitable order for a girl? Would it not be better to have community homes with secure accommodation?

Mr. Deputy Speaker (Sir Myer Galpern): Order. We appear to be adopting a new practice of gathering up all the interventions. Perhaps before the Minister replies I should ask the House whether there are any further interventions.

Mr. John: I was trying to have a package tour of interventions to save time in the long run. I wish to tell my hon. Friend the Member for Ormskirk that we want to proceed further as secure accommodation becomes available. I am sug-

gesting how we should determine our priorities.
I think that the hon. and learned Member for South Fylde must have been listening to a different speech from that which I made. Certainly I did not say that borstal training could be awarded before sentence. What I was saying was that in regard to those remanded by the magistrates to the Crown court, a certificate of unruliness is not required and therefore they are outside the scope of that order. I hope that that is now clear to all hon. Members.
The nub of the case relates to numbers and whether there exist a sufficient number of secure places to justify this order. I congratulate the hon. Member for Chislehurst (Mr. Sims) because I have had a lonely eminence in this matter and I am glad to find somebody who uses figures as badly as I do. The hon. Gentleman mentioned the figure of 101 certificates of unruliness granted in the first nine months of this year.
Let me give a breakdown of those figures. The issuing of 101 certificates of unruliness does not mean that 101 people are dealt with, because, as hon. Gentlemen will know, a certificate of unruliness is initially granted for three weeks, beyond which a further certificate has to be granted. This comes back to the point raised by my hon. Friend the Member for Sowerby (Mr. Madden). It is extremely unlikely that any girl will be remanded in custody for longer than a month. But sometimes it happens, in which case the number of certificates does not equal the number of offenders. That is the first point to be made, namely, that 101 certificates of unruliness does not necessarily mean that 101 girls have been dealt with.

Mr. Sims: I hope that my figures are correct, because I have taken them from the hon. Gentleman's Department's replies to my own Questions. In answer to a Question dated 7th November, I was told that in the 12-month period October 1977 to September 1978, 132 certificates were issued. I then asked for a breakdown and was told that they were in respect of 101 girls. I used the figure of 101. Therefore, we are talking about 101 girls in a 12-month period.

Mr. John: The hon. Gentleman only confirms my being one step up the ladder


of numeracy, because although he has not realised it we are taking a different base date. I was talking about the first nine months of this year, whereas he took a 12-month period. However, I accept that 132 certificates were made during that 12-month period. But in 24 cases more than one certificate was issued in respect of the same girl. Therefore, although 101 certificates of unruliness have been made this year, fewer individuals than that are involved.
However, this is an aggregate. It does not mean, as the hon. Gentleman was understood to say on radio this morning, that because 101 girls have had certificates made against them, whereas we have only 66 places, accommodation must be inadequate and, therefore, the order cannot possibly be made. The fact is that the number of girls who are remanded under certificates of unruliness average 12 at any one time. The largest number in any single month last year was 18. Therefore, we are really talking about 18 girls with certificates of unruliness made against them, whereas there are 66 units of secure accommodation. On those figures there is absolutely no question but that there are sufficient secure care places to enable this order to go through.
For six of the nine months about which I am talking, the number of certificates issued did not exceed 10. The largest number in any one region was six, so we are talking about comparatively small numbers. We are certainly not talking about 100 girls being foisted upon secure care accommodation at any one time. In fact, taking the figure of 18, we would have room to treble the maximum number of certificates of unruliness which have been made in the first nine months of this year and still have spare accommodation. I hope that that disposes entirely of the argument that insufficient units of accommodation are available.
As I have said, 66 units of secure accommodation are available. Of these, as the hon. Member for Chislehurst has said, four are at present out of operation because there is a shortage of staff. The Department of Health and Social Security has consulted the local authority concerned and I have the assurance that by the time this order comes into operation—on 1st January—those four units will

be in commission. Therefore, we shall have 66 in operation.
Mr. Lawrence: If the hon. Member is right and there is always sufficient secure accommodation, why do so many magistrates think, on the advice of the social service workers, that there is not? Can he explain why so many applications are made for unruliness certificates in the first place if there is adequate accommodation?

Mr. Mayhew: Surely the Minister's argument depends for its validity upon the premise that the existing secure accommodation is vacant and ready to take the additional 16, which is about 25 per cent. The information one receives is that it is nearly always full.

Mr. Madden: rose—

Mr. Deputy Speaker: We do not have enough places for all hon. Members.

Mr. John: As I understand the situation, and I have checked this very carefully, the accommodation is available for this purpose.

Mr. Mayhew: But is it vacant?

Mr. John: Available means vacant. Replying to the hon. Member for Burton (Mr. Lawrence), I cannot speculate why people say what they do. Often they persist in saying things that are contrary to all evidence. In due course I shall deal with the amount of secure care accommodation available in some areas to which allusion has been made by the hon. Member for Chislehurst.

Mr. Robin Hodgson: rose—

Mr. John: No, I shall not give way. The hon. Member for Walsall, North (Mr. Hodgson) has been out of this debate for a long time. I intend to answer those hon. Members who have sat here throughout the debate.
The amount of secure accommodation obviously varies from region to region. Within a global sum we have lack of provision in some areas and adequate provision in others. Again I have checked, and there is a method whereby local authorities can co-operate with each other and can make available secure care accommodation on a swap system between


the different regions. Where there is a shortage in any particular area accommodation can be made available in another area.
If we are to make the best possible use of the available accommodation provided, it is for local authorities to cooperate to the full and utilise all that accommodation.

Mr. Hodgson: rose—

Mr. John: No, I shall not give way.

Mr. Hodgson: rose—

Mr. Deputy Speaker: Order. I hope that I shall not have to issue a certificate of unruliness.

Mr. John: The hon. Member for Walsall, North seems to think that he has to get up in order to make his mark on a register when he returns to the Chamber. I will not give way to him, and I hope that that is tolerably clear to him.
There can be an argument that the secure accommodation may take the young girl some miles from her home but that also happens at present in the remand system. The hon. Member for Chislehurst said that there are 45 girls on remand at Risley. For there to be that number they must have come from a very wide catchment area. Therefore, that is not a true argument against making this order.
The hon. Member for Chislehurst also asked why the order was necessary. The answer is that sometimes there is either inadequate knowledge of the availability of accommodation or an insufficient search for that accommodation. Therefore, the justification for the order is that a sufficient and proper search be made for the acommodation within the local authority bounds. Therefore, I believe it to be justified on that ground.
I accept, as do all of us who accept the philosophy of the 1969 Act, that, progressively, people under the age of 17 ought not to be remanded to prison department accommodation, but that will depend upon the availability of secure places. I was asked about the resources devoted by the Government towards community homes generally and secure places. Since 1974, there has been a 30 per cent. increase in spending on children's services. Loan approvals for community homes

have totalled over £35 million, in addition to the £5 million made available for secure places.
I can confirm that by the end of 1980 the number of secure places will have trebled as compared with the position that we inherited in 1974. Hon. Members opposite, with all the accretion of virtue which comes from long occupation of the Opposition Benches, say that the Government should have provided more. Yet we have done very much better than the Conservative Government did between 1970 and 1974. I repeat that there will be a trebled availability by the end of 1980.

Mr. Raymond Whitney: There will be a trebled need for them.

Mr. John: I doubt that very much. If the hon. Gentleman thinks that to be the situation, no amount of accommodation, no amount of building, will keep pace with that sort of increase in remands. But it is not borne out by the experience of the past five years, and I see no reason why last year should prove so gloomy even in the hon. Gentleman's own forecasts.
The hon. and learned Member for South Fylde said that it is no longer right to talk about lack of resources. I sit on this Bench in some pretty unlikely circumstances, listening to a party which constantly talks about the need to cut public expenditure further but then says that it is no argument to claim that we lack the resources. Such an attitude is a display of double standards. I know that the hon. and learned Gentleman has a close interest in these matters, and I put to him that it is no use the Conservative economic spokesman saying that in general there should be a massive cut-back in public expenditure while his colleagues suggest that for the provisions of secure accommodation we should have more expenditure.
The hon. and learned Gentleman suggested that it could be done at the expense of other penal establishments. What other penal establishments? He did not specify. Surely it could not possibly be the community service orders or the exciting developments in penology, for which both sides of the House can take credit. As ever, the proposal was marked by vagueness, perhaps to satisfy people's


consciences that we can provide sufficient secure places and money can be found for it.
The hon. and learned Gentleman said that the unanimous voice of social workers, magistrates, and so on, was that we should put the matter back to the courts to make secure accommodation orders. But that is not true. The magistrates have made no secret of their belief, and I have made no secret of my belief that they are wrong on this point, but the working party found that amongst the local authorities and amongst many magistrates there was a unanimous belief that the 1969 Act was the basis upon which the future of our care of young people had to rest, and that the local authorities, which included social workers, were unanimously of the view that the situation about secure care should remain as it is.
My hon. Friend the Member for Sowerby asked me a number of questions. I have dealt with the question about the length of remand. Let me deal with the question of Yorkshire and Humberside. At present there are five secure care places there, and there are plans for a further four to be built. The maximum number of girls remanded in custody at any one time in the past nine months was three, and the total in the past nine months was eight. Therefore, my hon. Friend will see that the provision of nine such places not only gives us ample for the present needs but a cushion against the sort of expansion that the hon. and learned Member for Royal Tunbridge Wells suggested in an aside might be experienced.
I return to the points made by the hon. and learned Gentleman and his questions. First, do I accept the need for secure care? Yes. I do. Secondly, is there enough secure care? In my view, on the figures I have given, there is no question but that there is sufficient.
The hon. Member for Chislehurst mentioned the West Midlands and said that magistrates there had told him that there was no secure care. In fact, there are 11 places for secure care. Another three are under construction, which will make a

total of 14. If I may say so—and I do not criticise the hon. Gentleman for this—this is an example of the sort of weakness that outside bodies get into through giving subjective judgments and subjective impressions. They are not always wholly aware of what is available. They are not wholly aware of how the present system can be used effectively.

Mr. Lawrence: The point is that the Department of Health and Social Security tells them. There is the example of Walsall, where the court phoned 58 times in September to obtain a place, and the DHSS allocated a place to a girl in February.

Mr. John: I should like details of that case, but as far as we are concerned—and it cannot be gainsaid—there are enough places available. There are arrangements for flexibility in their use. When the hon. and learned Member for Royal Tunbridge Wells asks why, then, we issue the order now, I reply "Because it is now possible and because we believe that now is the right time to end a system which"—even if one uses a milder adjective than that used by my hon. Friend the Member for Ormskirk—" amounts to an extremely undesirable state of affairs for girls of 15 and 16."
Therefore, I hope that the House will be reassured as to the numbers and as to the provision being made, both now and in the immediate future, and will accept that the order should now come into force.

Question put and agreed to.

Resolved,
That the Children and Young Persons Act 1969 (Transitional Modifications of Part I) Order 1978, he not made in the form of the draft laid before this House on 1st August 1978 in the last Session of Parliament.

Orders of the Day — PUBLIC ACCOUNTS

Ordered,
That the Standing Order of 18th December 1974 relating to the nomination of the Committee of Public Accounts be amended, by leaving out Mr. John Evans and inserting Miss Betty Boothroyd.—[Mr. Thomas Cox.]

Orders of the Day — PORT HEALTH REGULATIONS

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Thomas Cox.]

9.18 p.m.

Mr. John Ovenden: I am very grateful for the opportunity to raise an issue that I believe should be of serious concern to all hon. Members and to the country as a whole. I can assure my hon. Friend the Under-Secretary of State for Health and Social Security that it causes great concern in my constituency. I refer to the changes in the port health regulations in April this year, which many of us believe have undermined effective public health controls and proper controls over infectious diseases.
Events since April have proved that the decision to remove the obligation on ships' masters to complete a maritime declaration of health in all circumstances was ill advised, and that the assurances given to the House by my right hon. Friend the Minister of State on 3rd April were over-optimistic and perhaps complacent.
I wrote to my hon. Friend the Under-Secretary making representations about the changes. In his response on 23rd May, he told me that almost everyone welcomed the changes. I find the word "almost" significant. Perhaps my hon. Friend can tell us tonight who did not welcome them. It is little use to those who know nothing about the subject welcoming them if all those who are involved in the issue and concerned with the health regulations take the opposite view. Perhaps my hon. Friend can tell us in particular what views were expressed to him by the health authority of the port of London and by other port health authorities.
What consultations took place with area health authorities in the port areas and with community health councils, which also have a role to play in representing the views of local people on issues of this kind? Were they even consulted? I doubt it very much. I am almost certain that community health councils in my own area were never consulted. In fact, they have made representations to me about the order since it came into force. They were even unaware that the Government intended to make such changes. I think that that requires some explanation.
Since April, it has been necessary only for masters to report if they believe that they have infectious diseases on board their ships. This runs the risk of missing cases of infectious disease by oversight on the part of the master, by laziness, by incompetence or simply by the mistake or misjudgment of the master. After all, masters are not trained in medical techniques. They are not trained to recognise infectious diseases and to know the difference between a serious disease and a case of the sniffles. Those are matters for the medical authorities
In present circumstances, it is impossible to know whether the absence of a maritime declaration means that a ship is disease-free or whether it is simply a case of neglect by the master. It is impossible for the port health authority to follow up suspicious cases as it could have done in the past. In the past, had no certificate been received, investigations would have been made. Now, one has to assume that the master has acted responsibly and has assured himself that there are no diseases on board.
In the port of London, which is the area to which I want to refer specifically. the deterioration in port health standards has perhaps been even more dramatic than in other areas. I say that because the standards which existed in the port of London prior to these changes were higher than those in the rest of the country and, therefore, the reduction has been that much greater. Boarding by medical officers was common practice in the port of London area. The port health authority there assured me that it was trying to continue the old practices and to maintain a medical presence on the river, but its efforts and effectiveness are surely undermined by the attitude of the DHSS and by the introduction of these new port health regulations.
Ships' masters are now under no obligation to co-operate with the port health authorities or to provide the information which is needed to police the river and the port of London effectively in health terms. Under the previous regulations, it was necessary before berthing for the ship's master to inform the authorities. As I understand it, there is no power in the new regulations to make the master do so.
On 3rd April of this year, the Minister of State told the House that there were options open to the port of London health authority which would overcome the difficulties which had been raised in the debate. It is quite clear from the statements of the medical officer for the port of London that he, for one, does not accept that view. Perhaps my hon. Friend the Under-Secretary will say what discussions have taken place since April with the port of London health authority, what proposals have been made by him and what discussion there has been about the options referred to by the Secretary of State. If there has not been any action so far, perhaps my hon. Friend will also say when he intends to convene a meeting with the health authority there and whether he will regard that as a matter of urgency.
My concern arises out of two incidents, both of which have occurred since April. one in my constituency at the Isle of Grain and the other at Tilbury, which is a few hundred yards across the river from my constituency.
The incident at Grain in August concerned the tanker "British Holly". A seaman employed on that ship left the ship and travelled by taxi to a general practitioner's surgery, thereby exposing people in the area to the risk of infection if he had an infectious disease. He was then taken by ambulance to Joyce Green hospital, Dartford, where it was found that he was suffering from typhoid.
The second incident concerned the better known case of the Russian cruise liner "Litva]" which was moored at Tilbury, where passengers were found in September to be suffering from typhoid. That case came before the courts recently. The master was fined £100 in Gravesend magistrates' court a few weeks ago.
I wrote to the Minister of State about both incidents. I wrote about the "British Holly" on 18th August and about the "Litva" on 18th September. I finally received a reply on 30th September in respect of both cases. I tried to raise with my right hon. Friend how the new regulations affected those incidents, and the ability of the authorities to deal with those cases. In the Isle of Grain incident involving the "British Holly", the Under-Secretary told me in his letter of 30th September that as the ship was operating to excepted ports it

was not subject, even under the old regulations, to the full controls. In a further letter, of 1st November, he went even further and said that in the particular circumstances of this ship there had been no change in the health regulations which had in any way affected what controls were exercised over it.
Since that letter I have made further inquiries. I am reliably informed that the procedure since 1st April in respect of that ship is somewhat different from that which would previously have been adopted. I understand that the "British Holly" would probably have been contacted by radio, by the port health authority and perhaps not boarded. Had that happened, the master would have been asked specifically to state whether he had illness on board. It would have been possible from such a conversation—from specific questions asked of the ship's master and a description of the state of health of members of the crew—to identify that case of typhoid a little earlier, certainly before the man suffering from it left the ship, got into a taxi and travelled to a doctor's surgery. Under the old regulations the masters knew that they had to report illness on board, either by radio or when they were boarded by medical officers. The new regulations remove such clarity and make it possible to evade proper reporting. This has been shown to be evident in the instance of the British Holly".
The instance of the "Litva" was perhaps even more serious. The Russian cruise liner was docked off Tilbury and typhoid was detected there in September. That caused great concern to my constituents because, although the ship was moored at Tilbury, when cruise liners use the dock the passengers often visit Gravesend to do their shopping because the shops in Gravesend are a bit better than the shops in Grays. They use the British Rail ferry across to Gravesend. Consequently, any typhoid outbreak on the ships using Tilbury exposes the people of Gravesend to possibly a greater risk than it does the people of Essex.
The port medical officer for the port of London is on record as saying that the outbreak could have been detected earlier, and appropriate action taken earlier, if the old regulations had been in force. Again, as in the case of the "British Holly", the master would have been


questioned and cases would have come to light. The master of the ship has been prosecuted for failure to contorm with the new regulations. That does not alter by one iota the fact that under the old regulatons this evasion could probably have been prevented.
In his letter to me of 30th September, the Minister told me that
the only difference between the old and the new regulations was in the filling in of maritime health declarations.
From correspondence which I have had with the port of London health authority since then I have reached the conclusion that that is not a fair analysis of the position. It is an oversimplified version of the story. Under the old system, masters were required to report for questioning by medical officers. The regulations were strong enough to enforce that. Now, the master does not even have to make his ship's presence known unless he suspects that there are infectious diseases on board.
How can a master tell such a thing? How can a non-medical man appreciate symptoms or, indeed, the seriousness of any symptoms? How can he decide whether the symptoms are sufficiently serious to justify being reported? One may well ask: why should he? It is not his job, as a ship's master, to be an expen on infectious diseases. Further, the temptation is always to underplay the incident and not to report anything if it is on the borderline. In the past, things were reported and could be properly investigated.
I have two further general points to make about the enforceability of the new regulations, and I wish to ask two specific questions. If ships are not boarded under the new regulations, and if no report is submitted by the master, how can the health authority effectively prove that someone was ill on board at that time, should the case come to court later? How can it be proved that someone has been ill on the boat and has recovered later or been removed from the ship en route to the port? These changes in the regulations undermine our ability successfully to conduct prosecutions in such matters.
I turn to the fines issue. The master of the "Litva" was detected and prosecuted. I suspect that under these weak regulations he would be one of the excep-

tions. Few people will be detected under the regulations. That master was convicted for breaking the port health regulations, but he was fined only £100 by the Gravesend magistrates' court. That is a ludicrously small amount. I do not criticise the magistrates, because they used their full powers. The maximum fine for such an offence is £100. I hope that the Minister will assure us that he intends to do something about that. It is ludicrous that people can openly defy health regulations and expose the population around the port area to infectious diseases and be fined only £100. That situation makes the law a laughing stock.
The two incidents which have occurred since April prove that even after a few months there is enough evidence to reexamine the changes. There is strong evidence that the changes were misguided and dangerous. The arguments made in the House in April now appear to be complacent. They imply an abdication of responsibility by the Department.
During the 3rd April debate, the Minister argued that the major dangers of infectious diseases arose from air travellers. He said that we could not impose effective controls in that sector and that, therefore, there was no point in doing much about the dangers imposed by sea travellers. That is an abdication of responsibility. The Minister said that because we could not be certain about the control of infectious diseases, we should not go as far as we could. Since we cannot be effective for air traffic, we should perhaps concentrate more on those areas where it is possible to have some effect.
In his letter to me, the Minister said that there had been few serious infectious diseases detected in the port of London in 1977, despite the stringency of the old health regulations. He told me that there had been only four cases of serious disease—hepatitis, malaria, pyrexia and tuberculosis. No mention is made of typhoid. Am I right to assume that there were no cases of typhoid? Alternatively, does the Minister regard typhoid as a disease which is not of a serious nature? He has said that typhoid is neither a disease for which quarantine is necessary nor one that is imported. How many cases of typhoid occurred in 1977? How many cases have been detected so far this year?
We should have a full inquiry into the new regulations. There should be a full and detailed discussion between the London port health authority and the Department about such problems. There should be effective action to ensure that ships are obliged to report their presence whether or not passengers or crew suffer from infectious diseases.
We must give back to medical officers adequate power to question masters about the health of crew and passengers. I hope that the Minister will introduce a realistic level of fines for those who break the regulations and so undermine the control of infectious diseases.

9.35 p.m.

The Under-Secretary of State for Health and Social Security (Mr. Eric Deakins): I am grateful to my hon. Friend the Member for Gravesend (Mr. Ovenden) for raising the subject of these regulations this evening. It will enable me, I hope, to dispel some of the incorrect information about them which has been given publicity following an outbreak of typhoid amongst passengers of the cruise liner "Litva" in August and September this year. These are the regulations to which my hon. Friend has alluded in not very glowing terms.
The Public Health (Ships) and the Public Health (Aircraft) Regulations 1970 as amended provide for the public health control of ships and aircraft arriving at or leaving sea and airports in England and Wales. But it would be misleading in this day and age to exaggerate their importance in the protection of this country against the spread of infectious disease from abroad. They were very important in the nineteenth century when infectious disease was more prevalent in the world, when such people as arrived here came by ship, sanitary conditions and habits here and abroad were not so good and medical science less advanced. Nowadays, as my hon. Friend has acknowledged, the vast majority of people arriving in this country come by air—about 30,000 a day at Heathrow airport alone. They arrive within 24 hours of leaving and diseases have incubation periods of days, weeks and sometimes even months.
Of the few who have contracted infectious diseases abroad, the majority will be unaware of it themselves and it will not

be detectable by medical inspection at the point of entry. Where it is apparent, we must of course have the machinery to take necessary precautions, but the main defence must rest within the country on a high level of sanitary conditions and habits and a rapid reaction by medical practitioners when a case arises.
Our regulations comply fully with the international health regulations. The World Health Organisation, in the light of the experience of the USA and Canada, which were before us in streamlining, and ourselves are likely, in proposing amended international health regulations, to recommend procedures very similar to those we have produced. It is likely to drop the international maritime certificate of health.
Having made that important point, that we are not concerned in this criticism of the regulations with any major leak in our defences against infectious disease imported from abroad and that there is no sanitary iron curtain possible, I shall turn to what happened when revised regulations were introduced in April this year after over two years of testing and with the agreement of all those organisations consulted.
The City of London, as my hon. Friend has fairly said, as port health authority for the Thames estuary was virtually alone—I believe that Newhaven was the other exception—in its opposition to the changes. It did not have the support of the Association of Sea and Airport Health Authorities.
Up to April of this year, the master of a ship arriving from a port outside the excepted area of Europe had to produce an international maritime declaration of health giving various details, whether the ship was "healthy" or not. The excepted area of Europe consists of Belgium, France, Italy, Luxembourg, the Netherlands, Ireland, Greece and Spain. If there had been an occurrence on board which might indicate infectious disease the master had to radio in ahead of arrival. On arrival he could not allow embarkation or disembarkation or working of the ship until that certificate had been cleared. This was normally done by the customs and excise staff who were boarding the ship, but, if there was any problem, port health authority staff gave clearance.
From April the requirement for a maritime declaration of health and restrictions on boarding were dropped in relation to healthy ships and these procedures were retained only for those ships where the master had circumstances indicating the possibility of infectious disease. This was in line with what had been the practice for many years, without difficulty, at airports, where no action is taken unless there is a report by the commander of the aircraft, or, of course, if customs or immigration staff notice anything untoward. It also follows the line taken for procedures in the United States since 1973 and in Canada. It was done only after lengthy and satisfactory pilot studies over two years at Southampton, Immingham and Milford Haven.
My hon. Friend asked me about consultation. On matters of general public health at ports, my Department consults the appropriate bodies. In the light of the experience that I have mentioned in the trial runs, proposals were put to the Association of Sea and Airport Health Authorities, the Environmental Health Officers Association, the General Council of British Shipping and interested Government Departments in December 1976. Draft regulations were circulated on the same basis in August 1977, and a final revision was circulated in January 1978. The principle of the amendment regulations has been generally welcomed, although I understand that objections were received from the City of London and Newhaven at a late stage.
At the same time as the unnecessary form filling and restrictions were dropped in April, the amending regulations and related procedures tightened up certain actual controls. It is impossible and unnecessary to inspect medically all passengers and crew and consequently it has always rested with the master to report indicative circumstances.
From April, the master was given much more precise guidance as to the signs that should lead him to make a report. For the first time, a leaflet setting out the rules was distributed on a national basis, via customs and excise officers, port health authorities and shipping organisations. Masters were required to report the presence of animals on board and powers to

sample food and water were included in the regulations. Certain new diseases—viral haemorrhagic fevers—were brought into the ambit of the regulations.
The regulations have been in force for more than six months and no one outside the London port health authority has found any difficulty. On the contrary, the changes have been welcomed not only to shipping interests, because they enable a quicker turn-round, but to port health authorities which have been enabled to divert staff to preventive work—to investigating thoroughly situations where they feel that there may be a health danger.
I turn to the situation in London. As I explained, until April this year, customs and excise officers were usually involved in giving health clearance to ships unless there was a problem requiring the attention of the port health authority, or port health authority staff were in attendance on arrival. This involvement of the customs and excise is historic—it antedates the establishment of port health authorities, or port sanitary authorities as they were at first named. In recent years, however, with staffing difficulties, customs and excise had been seeking to be relieved of this work. In London, the port health authority took over the work four or five years ago and set up a system, based on Gravesend, with launches and full-time medical officers attending to give 24-hour cover. All ships reported by radio and were either given clearance by radio or boarded by a medical officer in the Thames. That is a more elaborate and expensive system than any that I am aware of elsewhere.
Let us look at what happened under that system. In 1977, about 6,000 ships arrived in the port of London. A proportion of those would, of course, come from the expected area of Europe, and, under international agreement, no maritime declaration of health can be required from these ships. In 1977, a total of 4,680 ships were cleared by radio and 878 were boarded. Despite falling traffic, the numbers boarded had risen to that figure from 541 in 1975. What did this system of inspection with medical officers on watch for 24 hours achieve? In 1977, a total of 13 cases of notifiable and other infectious diseases are listed; in 1976 there were 16. But these figures include many minor matters—"bronchitis",


"chicken pox", "coryza and pharyngolaryngitis". This has been the pattern for a number of years, there is no evidence of, or even room for, much failure to report under the old or new systems and I think it highly unlikely that, by dispensing with hundreds of radio messages and forms with "nil" returns, anything much is going to be missed. I must emphasise that no procedure can cope with a wilful and flagrant breach by the master of a ship of the requirement to notify.
The centre at Gravesend, which is of great concern to my hon. Friend, is aware of ships' arrivals and, indeed, can see them. The port medical officer and his staff can still board a ship if so desired at any time. There is provision that the port medical officer can require a maritime declaration of health if, in particular circumstances, he wishes. The City of London, although well aware in advance of the changes to be made in the regulations, made no preparations. The medical officers at Gravesend are still in post but are, I understand, likely to be replaced at the end of January by doctors on call.
Certain cases of typhoid related to ships arriving in the Thames have been quoted as showing the inadequacy of the regulations in relation to London but this is not so. My hon. Friend mentioned the instance of the MV "British Holly". Four members of the crew of this ship were sent on 2nd August, on arrival at the Isle of Grain, with apparently minor medical problems to see a local doctor. The Isle of Grain does not come within the main London port health system. There are local arrangements, and the dotor was in fact deputising for the port medical officer responsible for ships arriving at the Isle of Grain while that officer was on leave. On examination of one crew member, the doctor arranged for the individual to be taken to the appropriate hospital, where he was found to be suffering from typhoid.
As my hon. Friend acknowledged, this is not a disease giving rise to quarantine. It is not in the same category of highly infectious diseases such as, for instance, smallpox, because transmission is normally by food or water contaminated by faeces or urine by a patient or carrier. This fever occurs world-wide, and there were 228 cases notified in England and Wales in 1977 with three deaths. These

are all provisional figures. The ship and crew were checked at subsequent ports of call and further tests were made.
The changes in the Public Health (Ships) Regulations which relate only to ships arriving from foreign ports are not relevant in this case. This is, first, because the ship was operating coastwise and, in the main, to excepted ports in Europe and was, therefore, either not subject to control or subject to very limited control. The crew of the "British Holly" had recently been brought in by air, and, if anything, the case supports the view I expressed—that the danger to public health from infectious disease lies in latent cases arriving by air rather than by sea. This case could equally well have occurred anywhere else in the community in the United Kingdom and, as I have said, protection rests with good sanitation, clean habits and—as was indeed the case here—rapid reaction by medical practitioners.
The second case mentioned—here there was rather more publicity—was the my "Litva", a Russian vessel under contract to a British cruise operator which gave rise to five typhoid cases and some dysentery cases—not all of the same type—following cruises to Portugal and North Africa ending at Tilbury on 19th August, 2nd September and 16th September. This came to light following diagnosis in a cruise passenger who had returned to Jersey. The situation was notified to the London port health authority on 30th August. This illustrates the difficulty of these cases, since although the individual had been ill on board there had been recovery and illness again after return home.
The London port health authority boarded the ship on both 2nd and 16th September when the master was still proceeding as if he had nothting to report. On 26th October the master of the ship was fined £300 and ordered to pay £415 costs for failing to report illness on board. There had been a large number of cases of diarrhoea during the cruise ending on 19th August and during the cruise ending on 2nd September, yet when a port health inspector boarded on the 19th he was told there was nothing to report.
In what way were the regulations ineffective? It is alleged that had the old regulations been in force the problem would have been discovered earlier. This seems unlikely, since the ship was boarded


on all three occasions. It is possible that the circumstances would have been reported on the written certificate of health, but the similar case of the cruise ship "Ellinis", at Southampton in 1976 can be quoted, where the certificate made no difference. Sample checks are provided for in the revised regulations, and the new powers to sample food and water were put in the revised regulations precisely to meet problems arising from cruise ships such as this. No contamination on the "Litva" was in fact found by the inspections of 2nd and 16th September and the source of infection has not been traced.
It seems to be the impression that health officials have no automatic right to board a ship coming from a port where it is known that there were, or had been, infectious disease. This is not so. Regulation 7(1), in conjunction with regulations 11 and 36 of the Public Health (Ships) Regulations 1970, as amended, enables an authorised officer to inspect any ship on arrival or already in his port health district, and changes in the definitions have in fact widened this power. The provision in paragraph 4 of circular LAC(78)5 that a percentage check of ships not reporting illness should be made was not intended to inhibit the port medical officer from directing his inspections to particular ships calling for greater attention or coming from areas which give rise to concern, or his power to increase the numbers of inspections if circumstances so warranted. At the request of my Department, the General Council of British Shipping is drawing the attention of its members to this possible misinterpretation.
It has been said that there would be difficulty in prosecuting under the new

regulations and I am glad to see that the case of the "Litva" has shown that this is not so. It has also been said—and my hon. Friend echoed this phrase tonight—that the maximum fine is "ludicrously inadequate". I am inclined to think, and would agree with my hon. Friend, that revision may be needed, but this would have been so before the new regulations came in and there were no representations until then about the level of fines. My Department is raising the matter with the Home Office, but, as hon. Members will be aware from some recent court cases, the formal penalty is not necessarily the prime deterrent. In the case of the "Litva" there would be defence costs in addition to the fine and costs I have mentioned, there would be the cost of flying 38 passengers home, the cancellation of a final cruise and losses due to adverse publicity. The attention of the Russian health authorities has been drawn to the matter, and I understand from ports that their ships are being especially careful regarding notifications.
I am satisfied that this case provided sufficient deterrent effect in relation to the failure to report to the health authorities and that it provides no evidence of the regulations being ineffective.
In conclusion, I emphasise that the effective working of port health controls rests with port health authorities and local authorities and with medical staff provided to them for this purpose. There is ample discretion in the regulations and under the operative circular for the controls to be exercised and applied effectively.

Question put and agreed to.

Adjourned accordingly at nine minutes to Ten o'clock.